1 National Infrastructure Commission Review of the case for Large scale Transport Investment in London
A Report for the National Infrastructure Commission March 2016 Executive Summary
The Need for Investment in London i Large Scale Public Transport Investment ii Making a Case for Investment iii Housing iv Funding iv
1 How the Case for investment in Transport is made
1.1 Assessment Framework: the Five Case Model 1 1.2 Strategic and Economic Cases – and the relationship between the two 1 1.3 Transport Investment as a means of unlocking other benefits 3
2 The Case for Large Scale Transport Investment in London
2.1 The evidence: London’s key challenges and strategic drivers 7 2.2 Summary 15
3 Large Scale Public Transport Infrastructure Investment
3.1 Current Investment Proposals 19 3.2 Transport Investment Options 19 3.3 Crossrail 2 22 3.4 Other alternatives to address the identified network gaps and opportunities 25 3.5 Regional Transport Investment 28 3.6 Possible Refinements to Crossrail 2 29 3.7 Reviewing the Crossrail 2 Case 29 3.8 Crossrail 2 Strategic Case: National GVA Impacts 31 3.9 Summary 35
4 Housing
4.1 The role of transport in facilitating housing delivery 38 4.2 Unlocking the potential of transport-led housing delivery 39 4.3 Crossrail 2 and Housing 41 4.4 Crossrail 2 Route Alternatives to Maximise Housing Delivery 48
5 Funding
5.1 Introduction 52 5.2 Funding 52 5.3 Options for funding 55 5.4 Financing 63 5.5 London and the regions 65 5.6 Funding & Finance Conclusions 66 Figures
Figure 2.1: GVA per head by UK region (workplace based), 2014 7 Figure 2.2: Savills Polymath Cities Index 8 Figure 2.3: Employment density against earnings differential: 2008 to 2012 average 8 Figure 2.4: Forecast employment growth, 2011 to 2041 10 Figure 2.5: Forecast population changes 2011 to 2041 10 Figure 2.6: The main reasons why Londoners chose to live in their neighbourhood 11 Figure 2.7: Counties that have residents that commute to London 12 Figure 2.8: Growth in journey stages on selected modes, 2001 to 2014 13 Figure 2.9: Onward modes of AM peak National Rail arrivals at Waterloo station by final trip destination 14 Figure 2.10: Annual number of rail passengers at Central London termini stations (millions 2014/2015) 15 Figure 3.1: Programme of London Underground Investment - Lines 20 Figure 3.2: Programme of London Underground Investment - Stations 20 Figure 3.3: Opportunity Areas and Very Large Planned and Potential Transport Investments 21 Figure 3.4: Central Activities Zone (CAZ) 22 Figure 3.5: Predicted 2031 AM Peak Crowding Levels on Underground and National Rail network 23 Figure 3.6: Predicted 2041 AM Peak Crowding Levels on National Rail and Tramlink Services 26 Figure 4.1: The potential for Crossrail 2 to deliver 200,000 homes 42
Tables
Table 4.1: Public Transport Accessibility Levels (PTALs) and development units 38 Table 5.1: Potential funding steams for Crossrail 2 53
Case Studies
Case Study – Paris 16 Case Study – Stockholm 49 Case Study – Hong Kong 54
Appendices
A Glossary B Review of Crossrail 2 Funding Assumptions C Review of City Deals This Report
This report has been prepared for the National Infrastructure Commission to inform their study of London’s public transport investment needs. It sets out recommendations put forward by an expert panel brought together in February 2016 to provide expertise and advice. The expert panel consisted of senior advisors at Steer Davies Gleave, Quod, Grant Thornton, Credo and Albion Economics along with Tom Worsley, visiting fellow at ITS Leeds and Martin Tugwell, Programme Director at England’s Economic Heartland Strategic Alliance/Buckinghamshire County Council.
The panel’s remit was to review the strategic and economic cases for large scale transport investment in London (including, and specifically, Crossrail 2) and the assumptions upon which business cases are premised. The review was to give consideration to: funding and financing; housing; transport appraisal; the relationship between transport and London’s economic performance; and relevant international comparators.
National Infrastructure Commission March 2016 Report
Executive Summary i National Infrastructure Commission
The Need for Investment in London In addition, coming on-stream fully by 2020 will be Crossrail 1 (£15 billion) and Thameslink (£6.5 billion) Employment and population growth in London is – two high capacity regional express routes, running happening on an unprecedented scale; in 2015 east-west and north-south across the central area and London’s population became larger than in any time in beyond into the surrounding shire counties. There is its history and it continues to grow. There is no realistic also a further package of major project investment scope to accommodate the additional travel this will proposals that TfL is progressing including: the Northern generate on the capital’s congested road network, Line Extension to Battersea (under construction); where, in any event, there is a need to devote more East London River Crossings (Silvertown, Belvedere); space to increased pedestrian and cycling activity and Bakerloo Line Extension to Lewisham/Bromley; and other public use. As a result, Transport for London tunnelled highway improvements. forecasts demand for travel by public transport will increase by 60 percent to 80 percent by 20501 – which But the current Mayor’s Transport Strategy, which is within the horizon of needing to start to plan and supports this set of interventions, is based on growth deliver major transport infrastructure investment. assumptions far lower than those that have actually occurred during recent years (albeit that the London Even if there was a significant change to economic 2050 Infrastructure Plan is based on more updated patterns or significant public policy to encourage a shift projections). in activity away from London, there is little risk that significant investment is not needed as the city will The continuing growth of London places strains on continue to attract job growth and London will need to its transport system, which if not met, will result in remain internationally competitive. increased overcrowding, poor service reliability and congestion and additional costs for businesses and There is a substantial programme in place to increase longer journeys for residents. Overcrowding is one the capacity of the London Underground network, of the greatest barriers to disabled and older people with new train fleets, station upgrades and (by travelling on the network2. By 2035 it is projected that means of new train control systems) higher service the number of over 80s living in London will be 70 frequencies. This includes maximising the capacity of percent higher than in 2015. Even with the planned the London Underground network: increasing train network improvements, by 2041 there is a forecast frequencies up to as many as 34 to 36 trains per hour increase in crowded hours of 92 percent over 2011 across the Jubilee, Piccadilly and Northern lines with levels compared with growth of 50 percent in demand. complementary investment in station capacity. This indicates that by 2041 conditions will have worsened with the average travel time per passenger The value of current investment proposals is significant. increased over the 2011 levels as the network carries Examples including the £5.5 billion investment in the additional demand3. modernisation of the sub-surface Underground lines including new trains and signalling, station capacity upgrades at Victoria and Bank (over £1 billion). There is substantial investment on improvements to the London Overground system to increase its capacity and enhances its reliability.
1 London Infrastructure Plan 2050, Transport for London, 2014 2 Understanding the travel needs of London’s diverse communities, Transport for London, 2014 3 TfL, Crossrail 2 Business Case, 2015 ii National Infrastructure Commission
Large Scale Public Transport Investment Crossrail 2
The pace of demand growth is such that more capacity Crossrail 2 matches well against London’s challenges will be needed, beyond the levels that will be created of congestion on the network as a whole, particularly by these existing commitments4. These pressures are national rail termini, by providing a cross-London link. evident – in fairly equal measure – on the London As well as relieving congestion, it also reduces the need Underground network and on the national rail network to interchange between national rail and the London on its approaches to central London. There are three Underground at Waterloo, Euston and Liverpool Street. components to the capacity challenge: It relieves Victoria, Northern (Morden branch) and Piccadilly Line congestion; creates a substantial uplift in • at and around the central London terminals; the capacity of the South West Main Line into Waterloo, • accessing the Central Activity Zone4; and which means much needed additional capacity for • meeting the growth expected to the east side of services from Hampshire and Surrey (and indeed London. Dorset, Wiltshire and Devon), routes that are today subject to excess demand over significant distances. There are multiple gaps in the transport infrastructure Similarly, it provides direct access from south west (existing and committed) when considered against London to the planned High Speed 2 terminus at Euston the needs set out in the Mayor’s Plan for London in and potentially facilitates major housing development in 2050. No single transport intervention is capable of key opportunity areas. fulfilling all of these gaps. The best response in terms of infrastructure investment would be a combination of the following types of measure:
• further cross-London links (of the Crossrail/ Thameslink style) because, well-directed, these can resolve multiple weaknesses (gaps) and bring an intrinsically more efficient operation; • completion of the London Underground and Docklands Light Railway line by line capacity uplifts, and implementation of measures to increase the capacity of the suburban rail network (metro-style trains and services); and • selected main radial route development of the national rail network – noting that large-scale capacity uplifts will rarely be justified by serving markets on a like-for-like basis (so connections to high volume movements or new catchments such as airports or national high-speed rail connections offer the best prospects).
Figure i: Proposed Crossrail 2 route map Source: Crossrail 2 Website, 2015
4 The Central Activities Zone broadly being the West End, the City of London and Nine Elms Corridor iii National Infrastructure Commission
There are other schemes at various stages of run on the economic case. It is now common practice development, and some of these could be examined for the sponsors of major transport schemes to in the East London Transport Study, now underway. provide decision makers with an estimate or a range Options here include the possible addition of an of estimates of the scheme’s impact on the UK’s Gross eastern branch to Crossrail 2, and an extension of the Value Added (GVA). Docklands Light Railway westwards from Bank to Euston. A southward extension of the Moorgate City Line to GVA analysis has value in providing a measure of the Cannon Street and Waterloo or connection between the impact of an investment on changes to both the level Lea Valley, Stratford, the Isle of Dogs and Brighton Main and in the spatial distribution of economic activity. It can line could also address the infrastructure gaps (both show where benefits arise and this is of great value in possible ‘third Crossrail’ schemes). considering questions such as value capture for funding choices. The techniques and evidence to estimate Making a Case for Investment GVA which seek to capture both the clustering and the labour supply effects are still evolving. There is, as yet, All transport infrastructure investment in the UK no standard approach. Evidence to date suggests that requiring public funding uses the ‘Five Case Model’ the different methods available might produce a wide approach to the development of business cases. It range of results. is a well-established approach and considered to be international best practice, the principle being that all Where labour supply is a constraint to economic activity publicly funded investment should be assessed in a in more productive locations, additional housing may consistent manner to enable prioritisation and trade- lead to net GVA gains. Such impacts are additional offs between investments. The ‘Five Case Model’ also to those which result from opening up new land for supports the development of affordable, deliverable and employment. It is therefore important to consider value for money schemes. GVA benefits in the assessment of the strategic and economic cases for a transport investment scheme to Within this model the Strategic Case sets out the ensure all potential benefits are understood. Dependent rationale of why intervention is required. Its principal development benefits are considered as part of the audience is the decision maker (and in the context of economic case, although they are not monetised. large scale investments this is principally Minister(s) or Parliament, although in the case of London, where there As currently assessed, the BCR for Crossrail 2 is not are substantially devolved powers, the Mayor of London high. One reason for this is that the standard (Transport and Greater London Authority (GLA) are also involved). Appraisal Guidance) forecasting and appraisal approach The Strategic Case sets out the impacts that matter to explicitly does not allow for any consideration of one of policy and decision makers, including some which are Crossrail 2’s key design objectives, which is to open up not part of the economic case. land (in the Upper Lea Valley in particular) for large scale housing development. The BCR is based on with and The Economic Case articulates the transport without scheme case in which land use is assumed to investment’s value for money which is based, in the be unchanged. This is the same short-coming that led to first instance, on the project’s Benefit to Cost Ratio ex-ante assessments of the Jubilee Line Extension having (BCR). This includes Wider Economic Benefits, which a weak BCR, a situation which materially changed when are additional to conventionally-measured transport it came to ex-post assessments. benefits such as journey time savings. For large public transport investment schemes that serve areas of large- A Transport Appraisal Guidance compliant approach scale economic activity, especially those that take the to the case development also places a cap on demand form of business activity ‘clusters’, significant job and growth which is likely to underestimate the benefits of productivity impacts are likely to accrue through the interventions and may lead to the under-provision of further intensification of activity levels: the benefits rail services. In the absence of any empirical evidence to society of this shift in employment towards more regarding the likely trajectory of long-term demand productive locations form part of the sensitivity tests and benefits, a range of alternative methods for iv National Infrastructure Commission
considering long term demand and benefits growth more innovation may be necessary because of the should be considered. Ignoring projected demographic scale and cross-boundary characteristics of the project. growth after an arbitrary cut-off date would seem Greater direct involvement with delivery, as well as unwise. While this constraint applies to all transport planning, would enhance the prospects that the land schemes, its effect on projects in London would be use change benefits would actually be secured, that proportionately greater if population and employment they would be developed to a coherent plan, and that in London continue to grow faster than elsewhere in the opportunities for land value capture are optimised. the country. Where the business case depends upon these outcomes, there is a strong case to ensure that Crossrail There are, in any event, continued opportunities to 2 is planned and delivered using comprehensive improve the case for Crossrail 2 as outlined in our planning and delivery powers. report. These opportunities centre on the route and branch configurations, whether better connectivity Funding can be provided to the fast growing areas to the east side of London (or whether this should be left to A variety of funding mechanisms are currently in place complementary investments); reducing its capital costs; for Crossrail 1, which could be used for other large scale and revised operating regimes. public transport investment and many of these have been highlighted for ‘rollover’ to Crossrail 2. In addition Housing to these funding streams, there are opportunities such as user charging (higher fares or the implementation Crossrail 2 has a close relationship with housing delivery of road user charging to fund public transport) for – transport provides access, housing generates demand example, land value capture and taxation to fund future which leads to fare revenue and economic benefits. It infrastructure programmes and projects. These funding offers land value capture opportunities. However, it also streams would rely upon a change in established requires land use change which needs to be securely policy. London has a distinct advantage in overcoming founded in planning policy. There is, for instance, little these barriers over other parts of the UK due to pre- benefit in routing Crossrail 2 along the Upper Lea existing governance arrangements. The stature and Valley if land use is not going to change in response. profile of the Greater London Authority and TfL are key The promoters of Crossrail 2 cannot simply assume components of this. that planning policy will enable that land use change. A decision to commit to Crossrail 2 that is dependant on Ultimately, funding and financing envelopes will be that land use change could be premature if it was in the formed on a project-by-project basis, and will be driven absence of policy commitments to change land uses. by the quantum of funding required for the project. Crossrail 1 is a prime example of this method, and Planning and transport infrastructure consenting demonstrates how Central Government funding can strategies therefore need to be aligned and a planning form a smaller part of the envelope. Crossrail 2, as policy vehicle needs to be found to achieve that, for a project, exemplifies the importance of land value example, the London Plan, a National Policy Statement, capture as a funding stream, where the link between a dedicated government policy statement or joint local cost of the infrastructure, and those receiving direct plans produced particularly for either end of the route. financial benefit is clearly defined.
There may be a need for a multi-local authority Outside of land value capture, user charging and plan that aligns housing delivery with infrastructure general taxation are expected to remain part of the investment. This type of approach has been a feature of funding stream for large scale transport infrastructure some of the devolution agreements that Government in the future. The extent to which this is acceptable has agreed with combined authority areas across the for decision makers and the public is a policy decision. country. Consideration should also be given to the The devolution of further fiscal powers, as identified nature of the delivery agency. For Crossrail 2, a Mayoral in a number of other reports, could form part of these Development Corporation may be an option, although discussions in the future. v National Infrastructure Commission
Conclusions • re-designation of current Strategic Industrial Land; and Reviewing the case for large scale transport • increased density of development overall. infrastructure in London has demonstrated that there is a strong need for additional transport services There are options for this policy co-ordination including to support and enable the predicted growth within specific Government policy statements such as a London. To secure London’s economic growth it is National Policy Statement although none are ideal and essential that a wide programme of investment in the scope and complexity of Crossrail 2 may require a public transport is progressed, in which priorities and unique policy response. implementation timings can be adjusted over time, rather than a one-at-a-time prioritisation of single major There may also be advantages to exploring the phasing investments. The scale of the challenge is simply too of Crossrail 2 and to investigate the costs and benefits large for the approach which has characterised the of each individual station. Although this review has not approach to investment over the last twenty to forty developed alternative options in detail, it would seem years or so. sensible that a couple of potential refinements could be reviewed in more detail (if not already undertaken) that In order to alleviate congestion at London national rail could improve the BCR. These could potentially form termini and the London Underground network, as well part of a phased scheme. as improving the onward journey for passengers, part of this investment should be to provide cross-London Firstly, exploring a potential refinement of a branch links. As well as congestion, growth in demand for to the east where development growth is expected to travel needs improved connectivity (new and faster be high, potentially as part of a second phase, or as links) to enable a sustainable and realistic approach an alternative to the New Southgate branch assuming housing delivery and the job growth that London needs proposed depot facilities can be relocated. Secondly, to prosper. Experience from cities such as Stockholm a straightened and more direct alignment between and Paris has shown the importance of providing Clapham Junction and Wimbledon via Earlsfield which cross-city services linking large population areas with has the potential to be delivered at surface level for part employment. of the route to reduce cost. In theory, this may support a branch to serve Balham and beyond (such as the Crossrail 2 provides significant opportunities to provide Brighton main line). part of the transport connectivity needed to facilitate new house building (up to 200,000 homes). It is a These potential refinements may improve the BCR. transport infrastructure investment that can enable In addition, phasing the scheme could help enable intensification of land use. However, development on increased land value capture. the scale that Crossrail 2 could support will require a number of policy alterations. Without policy change, it The potential funding options proposed for Crossrail will be difficult to provide the level of densification and 2 appear sound, assuming the funding for Crossrail number of homes forecast to support the investment 1 continues as planned. There are a number of ways case. in which funding could be maximised to serve the challenge of 50 percent non central Government Our recommendation is to bring the planning of grant. To maximise this funding, again housing Crossrail 2 and its associated housing development and development policy changes will be required, closer together thorough the planning phase and particularly to take full advantage of land value increase. specifically to investigate the means of achieving The current governance structure in London with accelerated policy support for: the GLA and TfL assists with this process, but greater devolution may assist further. The creation of a delivery • intensification of land around stations, on both vehicle with powers to secure and deliver the necessary brownfield and Green Belt sites; land use change as well as the infrastructure would bring more confidence to the investment case.
National Infrastructure Commission March 2016 Report
How the case for investment in transport 1 is made
1.1 Assessment framework: the five case model
1.2 Strategic and economic cases and the relationship between the two
1.3 Transport investment as a means of unlocking other benefits 1 National Infrastructure Commission
1.1 Scalability refers to the principle that the same Assessment Framework: approach can be applied to all investment assessments the Five Case Model regardless of size. Proportionality refers to the principle that the extent or effort scheme promoters should go All transport infrastructure investment in the UK to in assessment of and monitoring of the scheme costs requiring public funding must adopt the Government’s and benefits should be proportionate to the scale and ‘Five Case Model’ approach to the development of risk of the proposed intervention. business cases. These two concepts are very relevant to a discussion on The Five Case Model is a well-established approach and large scale infrastructure investment when considering considered to be international best practice. Governed cases put forward by scheme promoters including an by HM Treasury’s Green Book, it is articulated and impact on the national economy versus investments detailed for the assessment of transport infrastructure where impact on the level and location of economic investment in the Department for Transport’s (DfT) activity is no more than local. Business Case model and Transport Appraisal Guidance (readily referred to as webTAG5). 1.2 Strategic and Economic Cases and the The purpose of the Five Case Model is to ensure the best value for money is obtained through application of relationship between the two a consistent decision informing framework. It requires The Strategic Case sets out the rationale of why scheme promoters to evidence that: intervention is required, as well as a clear definition of outcomes and the potential scope for what is to be • the proposed intervention is supported by a achieved. It is expected to cover how the intervention compelling case for change that provides holistic fits with national, regional and local policies, drivers fit with other parts of the organisation and public of change and a clear statement of the associated sector – the Strategic Case; benefits, risks, constraints and interdependencies. • the proposed intervention represent best public value – the Economic Case; The Strategic Case is the explanation and justification • the proposed “deal” is attractive to the market of why the proposed intervention is needed, why place, can be procured and is commercially viable – action needs to be taken now and the consequences the Commercial Case; of failing to take timely action. Its principal audience • the proposed spend is affordable – the Financial is the funders’ decision makers and therefore it sets Case; and out those impacts that matter to policy and decision • what is required from all parties is achievable makers, including some which are not part of the – the Management Case6. economic case. Decision making has now been mostly devolved and the impacts of the intervention at a local The underlying principle of this approach is that all level may be of more relevance to local decision-makers publicly funded investment should be assessed in a in their concerns about the prosperity of the area they consistent manner to enable prioritisation and trade- represent than the national perspective of the scheme offs between investments and therefore the assessment provided by the benefit to cost ratio. For example an framework requires scalability and proportionality (the increase in local jobs and Gross Value Added (GVA)7 former for wide application and the latter for efficient could provide a more meaningful metric for local use of resources). decision makers but one which does not form part of the Benefit to Cost Ratio (BCR) from the economic case.
45webTAG being the Department for Transport’s Transport Appraisal Guidance document website 6Public sector business cases, Using the five case model, Green book supplementary guidance on delivering public value from spending proposals, HM Treasury, 2013 7 Gross Value Added (GVA) is an indicator of wealth creation, measuring the contribution to the economy of a specified investment in economic activity 2 National Infrastructure Commission
The role of the Economic Case is defined in the DfT’s Following SACTRA and Eddington, the DfT value-for-money assessment guidance. The definition supplemented the webTAG guidance with a of value for money is based in the first instance on requirement to estimate, where appropriate, benefits the project’s BCR, derived from the costs and benefits initially described as ‘Wider Economic Benefits’ and which are quantified and valued in money terms in the subsequently renamed ‘Wider Impacts’. These included Transport Appraisal Guidance. The unquantified benefits the effects of agglomeration, the impacts of imperfect are then reviewed by decision-makers to establish competition, and certain labour supply effects. The whether, in their view, the magnitude of such impacts Wider Impacts for which detailed guidance is now might be expected to change to a significant extent the provided in webTAG are: monetised BCR. This modification to the BCR, which follows from including the impacts which are omitted • agglomeration impacts: the benefits of the change from the conventional BCR, is of particular relevance to in productivity firms derive from an increase investors to understand the specific scheme BCR in accessibility when firms are located in close Assessment has traditionally looked at the transport proximity; benefits which estimate the social welfare benefits and • output change in imperfectly competitive markets: costs of a scheme, relative to a ‘do nothing’ scenario. welfare gains above the cost of production that These welfare effects include journey time savings and result from an increase in output generated by a reliability, and environmental and other factors. transport improvement; • labour supply impacts: benefits generated by more Wider economic benefits are the impact of transport on people deciding to enter the workforce in response productivity and Gross Domestic Product (GDP)8, and to a transport investment reducing the costs of are caused by the existence of market imperfections in participating in the labour force; and transport-using industries. These imperfections mean • move to more or less productive jobs: benefits that the value individuals place on impacts may differ brought about by members of the labour force from those placed on it by society. Transport Appraisal deciding to move to areas of employment where Guidance seeks to include all benefits and costs, and so they will be more productive in response to a should include the best estimates of all wider benefits transport scheme. (or costs) including those arising because markets are imperfect. The value put on agglomeration benefits in the cost benefit analysis is measured by the additional output Many welfare gains from transport schemes are produced on account of the increase in accessibility. themselves recorded as increases in GDP, but some The costs of delivering the change are accounted for are not. It is possible that some impacts on GDP do not in the transport scheme costs. Consumers benefit reflect increases in welfare. from the increase in output, in much the same way as they benefit from a comparable increase caused by The relationship between transport and economic reductions in business transport costs. growth was reviewed in the 1999 Standing Advisory Committee on Trunk Road Appraisal (SACTRA) Report on transport and the economy9, which was followed up by research commissioned by the Department for Transport, and was also addressed in the 2006 Eddington Report10.
8Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period 9Transport and the economy: full report, Standing Advisory Committee on Trunk Road Appraisal, 1999 10 The Eddington Transport Study, The case for action: Sir Rod Eddington’s advice to Government, December 2006 3 National Infrastructure Commission
The labour supply effects have two effects on the 1.3 cost benefit analysis. The first is the value to the Transport Investment as a means of individual who is induced to change behaviour. Since unlocking other benefits the individual could always have joined the labour force or worked in the more productive job before the The Strategic Cases for transport investment, scheme opened but chose not to do so, the benefit to particularly large-scale infrastructure investment have the individual can be no more than the benefit they get been increasingly based on transport as the mechanism from the scheme, measured by the change in transport for delivery of other outcomes, i.e. employment costs (or to be more precise, half of the value of the growth, regeneration and housing and unlocking change)11. We can assume that although the individual development land. was induced to change behaviour because of the higher post-tax salary provided, adequate recompense for the The DfT has undertaken work to understand and review greater responsibility, longer journey or additional effort the methods for capturing these measures in Strategic of the more productive job is provided. For society in Cases12 and to ensure the economic appraisal approach general, benefits are gained from the additional tax supports the Strategic Case for investment this is part of revenues collected by Treasury on the new or, in the the ongoing evolution and refinement of the Transport case of the move to a more productive job, the higher Appraisal Guidance. earnings. Therefore the additional tax take on the additional earnings is counted as a welfare benefit in There are two areas where the webTAG economic webTAG. A measure of GVA would, however, include case approach diverges from a broader GVA measure all of the additional earnings as such a metric takes no of economic impact. Firstly in the measurement of account of the additional effort, loss of leisure hours the impact of land-use changes that are forecast to etc. associated with the individual’s input into realising be generated by the connectivity improvements of the higher earnings. the transport investment scheme. Technical economic measurement issues make this estimation difficult, The economic case guidance within webTAG sets although recent webTAG guidance on dependent out to measure those Wider Economic Benefits, development attempts to partially address this in highlighted above, which are considered additional to relation to housing development, by considering the net conventionally measured transport benefits. Because gain in value of the land. of the continuing debate around the methods and parameter values of this quantification, webTAG In accordance with the Transport Appraisal Guidance currently requires these benefits to be included as a (TAG) housing development can only be considered as sensitivity test only. part of the case for the investment if the development is dependent on the transport intervention being The measurement of GVA impacts of transport considered. If not then the intervention needs to be investment seeks to measure different metrics from the considered solely on transport grounds. Defined as welfare based approach upon which webTAG is based. dependent development, new housing associated with The techniques and evidence to estimate GVA are still the scheme is dependent development if, with the new evolving and there is no standard approach. Different housing, but in the absence of any transport scheme, methods will have different requirements in terms of the transport network would not provide a “reasonable modelling effort. Evidence to date suggests they might level of service” to existing and/or new users. There produce a wide range of expected results. is no precise definition of reasonable level of service, however, if additional traffic can be accommodated by the network without significant increases in the costs of travel for existing users, then the network can be13 assumed to be providing a reasonable level of service.
11 The “rule of a half” applies to generated or suppressed trips. Economic theory suggests that when consumers change their travel in response to a financial incentive, the net consumer surplus averages half of their price change. This takes into account total changes in financial costs, travel time, convenience and mobility as perceived by consumers. 12 Such as Assessment of Methods for Modelling and Appraisal of the Sub-National, Regional and Local Economy Impacts of Transport, Report to the Department for Transport, MVA, September 2013 13 TAG UNIT A2.3, Transport Appraisal in the Context of Dependent Development, Department for Transport 4 National Infrastructure Commission
The quantification of benefit is then made up of the There are further GVA impacts that are not necessarily planning gain measured by the increase in land value additive to transport benefits. These include: over the previous use value. Deducted from this is the cost to other road users in the scenario with the new • employment and productivity gains that otherwise transport infrastructure, including any infrastructure would take place abroad; and funded by the developer, and imposed by the traffic • increased labour market participation. generated by the new development. These costs can be derived from the transport model, run with the new GVA gains are driven by behaviour change, in terms scheme included in both the case with and without the of the generation or relocation of jobs and/or home housing and developer funded infrastructure. location. There is some evidence that large schemes are more likely to bring about the scale of impact that leads The benefits of dependent development are not added to this behaviour change. to the webTAG estimates of scheme benefits, perhaps because of uncertainty about the methods of valuing So for large schemes there is value in presenting an these impacts and understanding their full effects. The exhaustive set of impacts – GVA, regeneration and process for reporting the benefits of development gain transport impacts – within an economic appraisal. Each is set out in webTAG 2-3. It notes that estimates of the provides decision makers with complementary evidence value of development gain should not be included in on the economic outcomes of the investment, both the quantified assessment of costs and benefits but in quantity and in location. Given the constraints of should be reported separately. While the benefits of modelling approaches and of a consensus on the best dependent development do not therefore affect the way to measure all these impacts – particularly GVA – it BCR, the guidance provides a table which allocates is not yet possible to define an approach that allows a scores (from largely beneficial, through moderate standard method for combining these impacts. and slight to neutral, with a similar scale for adverse impacts). The scores are determined by the magnitude WebTAG guidance is currently under review in relation of the quantified net benefits and play a role in the to wider economic impacts. This is in response to the decision about the value for money category into which Transport Investment and Economic Performance (TIEP) a scheme falls. Non-monetised value is recommended research previously commissioned by the DfT.14 as an output from this process, merely a qualitative impact score based on the scale of the expected impact, There may be value in extending the scope of together with an estimate of the number of additional dependent development analysis to incorporate housing units unlocked. This is because not all of the employment as well as housing impacts. For large development impact can necessarily be attributed to transport investment schemes, the significant job and the transport investment. productivity impacts are likely to accrue through the intensification of activity within cities. The scope of this The impacts on appraisal outcomes are likely to be more guidance could incorporate such impacts in addition significant where the key objectives of the investment to those which result from the opening up of new land are to stimulate additional housing and employment for employment. This could help improve the economic regeneration. But the extent to which additional case for large scale investment schemes. housing and job impacts are net additions to GVA is not straightforward. The DfT’s starting assumption is that they should be measured as a redistributive impact. However, where labour supply is a constraint to economic activity in more productive locations, additional housing may be expected to lead to net GVA gains.
14 Transport investment and economic performance: Implications for project appraisal, Anthony J. Venables, James Laird, Henry Overman, 2014
National Infrastructure Commission March 2016 Report
The case for transport 2 investment in London
2.1 The evidence : London’s key challenges and strategic drivers
2.2 Summary 7 National Infrastructure Commission
2.1 Inner London19 produces 95 percent of London’s GVA The evidence: London’s key challenges in the financial and insurance industry, and over three- and strategic drivers quarters of its GVA in the professional, scientific and technical activities; information and communication; London’s key challenges and strategic drivers are well and real estate industries20. Outer London accounted researched and documented. The GLA and TfL maintain for over three-fifths of London’s GVA in three industries a suite of documents including the London Plan and (transportation and storage, construction, and Mayor’s Transport Strategy which provide the summary manufacturing). of, and evidence for, London’s strategic drivers. These factors are also regularly and fairly widely London’s economy is diverse which contributes to critiqued by think-tanks and other groups but, as the its global competitiveness, its growth and resilience. responses to the National Infrastructure Commission’s London is, of course, the UK seat of government, with call for evidence suggest, the underlying key challenges many associated civil service and public administration and strategic drivers are roundly agreed upon by all departments; it is a global centre of finance; it major stakeholders and industry professionals. has world class institutions in higher education, entertainment, culture and the arts. As a world leader London’s Economic Impact in financial services, technology and media, it hosts a large number of company global headquarters. It is In 2014, London’s total nominal GVA was £364 billion15, connected by high speed rail to Paris and Brussels and which is around 20 percent of the UK’s total GVA, with has the world’s second busiest international airport. the South East contributing a further 15 percent. Over It hosts the nation’s busiest airport in terms of air the five years from 2009 to 2014, London’s economy freight and has a major new container port (London grew by 29 percent16. London has the highest GVA per Gateway). It is a major international tourist centre. Its head (in 2014 £42,666 per head, the English average nearest global competitor in terms of strength in depth being £25,367 per head17). The London Borough of across a diverse set of economic pillars is New York, as Tower Hamlets has had the highest annual growth of shown in Figure 2.2. The densest and most highly paid local areas in the UK with GVA per head increasing by districts in the UK are all in London where there is a high almost 10 percent. concentration of private sector knowledge-intensive jobs21. Figure 2.3 shows the employment density across different areas within London as well as the other UK
175 Cities (there may however be correlations with the skills availability which is not reflected in the graph). 150
125
UK Average = 100 100
75
50
25
0
Lon SE E Mid W Mid Scot Wal East SW NE NW York NI
Figure 2.1: GVA per head by UK region (workplace based, 2014 Source: ONS18
15 State of London’s economy, trade and London’s specialisation, GLA economics, 2016 16 London leads UK cities, Office of National Statistics, December 2015 17 Regional Gross Value Added (income approach), 1997 to 2014, Office of National Statistics, December 2015 18 Regional and local economic growth statistics briefing paper, Number 05795, 11 December 2015 19 Inner London being the boroughs of Camden, City of London, Greenwich, Hackney, Hammersmith and Fulham, Islington, Kensington and Chelsea, Lambeth, Lewisham, Southwark, Tower Hamlets, Wandsworth, Westminster 20 Regional and sub-regional GVA estimates for London, Office of National Statistics, December 2011 21 Investing in City Regions, Volterra, November 2014 8 National Infrastructure Commission
Technology National Higher Culture & the Global Financial Logistics City Services & media Government education arts tourism (Major ports, (Tech, media, (Capital city/ (University (theatre, music (Number of transportation) (depth of offer) creative) administrative) rankings) & art) tourist arrivals) London Hong Kong Singapore New York Tokyo Paris Shanghai Berlin Dubai Sydney
Figure 2.2: Savills Polymath cities Index Source: Savills22 Strength & Specialism Not a strength & Specialism
Figure 2.3: Employment density against earnings differential: 2008 to 2012 average Source: Investing in City Regions, Volterra, November 2014
22 The World and London, global powerhouse An in-depth investigation into what makes London real estate so investable on the world stage, Savills World Research 2015 9 National Infrastructure Commission
Employment Growth Population Growth
London has seen significant growth in employment, In every year since 1988, London’s population has from a low point of 3.8 million jobs in 1993, to 4.8 grown, including through the economic downturn million by 2011. This has been accompanied by major of the early 1990s. The scale and pace of population structural shifts away from manufacturing towards growth in London is much greater than previously services. The Further Alterations to the London Plan envisaged. The original London Plan set out forecast (FALP) forecasts growth to 5.8 million jobs in London population of 7.8 million by 2011 for which the census by 2036. Recent growth has however been very strong, of that year identified a population of 8.2 million. The which means that that by 2013 the forecast of 5.2 revised population projections set out in the FALP million by 2021 had already been reached. Recent work forecast London’s population rising from 8.2 million in by Oxford Economics suggests that even the revised 2011 to 10.1 million in 2036. forecast may not be high enough, and that the London Infrastructure Plan forecast of 6.3 million jobs by 2050 Further projections that have been prepared by the GLA could be surpassed as early as 202623. to support the Mayor of London’s 2050 Infrastructure Plan show a central forecast for 2050 of 11.3 million. The FALP sets out forecasts of both office based The same study by Oxford Economics noted above employment growth and demand for office floor space. suggests that by 2050 London’s population will be over Between 2011 and 2031 total office based employment 12 million26. The population growth predicted as shown is forecast to grow by 303,000 jobs, of which 177,000 in Figure 2.5 does not reflect any densification and land (58 percent) is forecast to be in London’s Central use changes that Crossrail 2 may support in areas along Activities Zone (CAZ)24 and north of the Isle of Dogs. the route. London’s forecast net additional floor space is 3.93 million square metres over this period, of which 3.07 90 percent of the people who work in central million square metres (59 percent) is forecast London (who live either in the city centre, suburbs or in the CAZ. hinterland) use public transport, walk or cycle to work27. This has an impact on where people choose to live in TfL employment forecasts, Figure 2.4, show the change London. in employment growth25 is mostly expected on the eastern side of London and mostly concentrated in the boroughs of Tower Hamlets and Newham. There is therefore expected to be a strong draw in terms of the growth of future jobs to the eastern side of London. It should be noted that Figure 2.4 does not reflect any impact of Crossrail 2 which may support greater intensification in areas along the route, as well as potentialy land use changes.
23 Future Proofing London: Our world city: risks and opportunities for London’s competitive advantage to 2050, Atkins Oxford Economics and Centre for London, 2015 24 The Central Activities Zone broadly being the West End, the City of London and Nine Elms corridor and shown in Figure 3.4 25 is a change in growth and therefore relative to current baseline employment level 26 Future Proofing London: Our world city: risks and opportunities for London’s competitive advantage to 2050, Atkins Oxford Economics and Centre for London, 2015 27 Urban demographics, Why people live where they do, Centre for Cities, November 2015 10 National Infrastructure Commission % Change in Employment, 2011 to 2041
Figure 2.4: Forecast employment growth, 2011 to 2041 Source: TfL, Crossrail 2 Business Case, 2015
% Change in Population, 2011 to 2041
Figure 2.5: Forecast population changes, 2011 to 2041 Source: TfL, Crossrail 2 Business Case, 2015 11 National Infrastructure Commission
Access to public transport, along with housing affordability, are much more frequently chosen reasons by Londoners for why they chose to live where they do than elsewhere in Britain as shown in figure 2.6. This is because of access to work, culture and leisure facilities and that the selection of place to live is likely to reflect respondents’ prioritisation of proximity to public transport over proximity to work27.
Jobs in London are taken up by London residents and by in-commuters from the areas around Greater London.
Availability of public transport London in the neighbourhood Great Britain The cost of housing available in the neighbourhood
To be close to my friends/family
I grew up in the neighbourhood
To be close to my workplace
The safety and security of the neighbourhood
The size and type of housing available in the neighbourhood
To be close to local shops
To be close to restaurants/leisure or cultural facilities
The quality of the built or natural environment of the neighbourhood
To be close to countryside/green spaces
To be close to good schools
To be close to my partner’s workplace
0 10 20 30 40 50 60 Share of respondents choosing this as one of three options (%)
Figure 2.6: The main reasons why Londoners choose to live in their neighbourhood Source: Future Proofing London: Our world city: risks and opportunities for London’s competitive advantage to 2050, Atkins Oxford Economics and Centre for London, 2015
28 Ibid 12 National Infrastructure Commission
Figure 2.7 shows the geographic area where at least 1 TfL forecasts that the overall pattern is expected to percent of the population commute to London. There remain similar to the present. In-commuting is expected is also an element of outwards commuting from inside to increase in proportion to employment growth, with Greater London to jobs outside Greater London. In 900,000 in-commuters expected daily in 2031. Although 2011, about 800,000 people commuted into London the major share of new jobs will be taken up by London on an average day from areas outside. Out-commuting residents, it is clear that longer-distance commuting will (commuting from inside to outside Greater London) continue to present transport capacity challenges that was much less, at an estimated 350,000 people extend beyond the GLA area and particularly affect the per day29. national rail network30.
Figure 2.7: Counties that have residents that commute to London Source: Commuting patterns in the UK, Office of National Statistics, 2011
29 Travel in London Report 8, Transport for London, 2015 30 Travel in London Report 8, Transport for London, 2015 13 National Infrastructure Commission
Demand for Transport Key pressure points are at and around the central London terminals. Waterloo and Victoria stations serve Over the last 15 years, total trips within London have the largest number of passengers. However, along with increased by 18 percent, with increases of 70 percent Euston and Marylebone, these stations are not served in rail trips and 72 percent in bus trips. From 2008, by any cross-London suburban railways nor are they total travel demand has grown by 9.2 percent in terms located in the heart of the West End or City of London, of journey stages and 8.2 percent in terms of trips. two key employment areas. This is broadly in line with population growth over the same period (i.e the Mayor’s Transport Plan). However, About 47 percent of national rail passengers transfer demand for public transport, particularly national rail to London Underground or Docklands Light Railway and London Underground has far exceeded expected (DLR) services on arrival at the their central London forecasts, both experiencing high levels of growth, and rail terminus31. This demonstrates the pressure on at much higher levels than population increases, as interchange routes at these national rail termini and shown in Figure 2.8. This is because the road network the fact for many, onward journeys by public transport is operating at capacity, with very low (and slightly are required. It is expected that some onwards journeys declining) operating speeds for private car use. National within walking distance may be required, but for rail and London Underground networks therefore have London Waterloo for example, many of the onward to play an increasing role as growth is accommodated in journeys are by non-walk modes, adding demand to the the years ahead. However, the national rail network is network as shown in Figure 2.9. already under pressure at peak times.
Rail Underground Bus Car driver Population 180 Nominal MTS baseline 170
160
150
140
130
120 Index (2001=100) Index 110
100
90
80 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 2.8: Growth in journey stages on selected modes, 2001 to 2014 Source: Central area peak cordon survey, Transport for London, January 2014
31 Central Area Peak Cordon survey, Transport for London, January 2014 32 London Infrastructure Plan 2050, A Consultation, Mayor of London, 2014 14 National Infrastructure Commission
TfL forecasts that demand for public transport is likely It also eliminates down-time for the train-fleets (and to increase by 50 percent between 2015 and 2050, crews) at terminus turnarounds, so improving rail with travel on national rail and London Underground service economics. Cross-London links also provide networks likely to increase by 60 to 80 percent over wider cross-connectivity for journeys to work, the same period32. This is an unprecedented level of expanding labour market catchment areas, as well as forecast increase. removing time-consuming and frustrating interchanges for passengers. Other investments can bring some, but One of the most effective ways of addressing a situation not all of these benefits. in which it is both the London Underground and the suburban rail network that are forecast to be under Crossrail and Thameslink follow this model and pressure is to connect London termini. This frees up London’s thirteen central area termini offer scope for space at the terminus stations (one re-use of which more cross-linking. Figure 2.10 shows the number of might then be the accommodation of more longer passengers using the national rail termini at present distance services – the model followed at Gare du Nord and the huge onward dispersal challenge that could be Paris, where RER services (regional express cross-Paris addressed through connecting some of these termini. services) pass through the station at basement level). As well as potentially delivering passengers to their destination, cross-London links can help to provide additional travel options, relieving pressure on key London Underground links.
Figure 2.9: Onward modes of AM peak national rail arrivals at Waterloo station by final trip destination Source: TfL, Central London Rail Termini Report, 2011
32 London Infrastructure Plan 2050, A Consultation, Mayor of London, 2014 15 National Infrastructure Commission
Key Employment areas (West End and the City)
Figure 2.10: Annual number of rail passengers at Central London termini stations (millions 2014/2015) Source: Estimates at Station Usage 2014-2015, Office of Rail and Road, 2015
2.2 The London Infrastructure Plan 2050 is now based on Summary higher projections but the infrastructure investments proposed are still at the planning stage. Even if there Jobs in London have a high economic value for the was a significant shift in economic patterns or public UK economy. Employment and population growth policy directing investment or activity away from in London is happening on an unprecedented scale. London, there is little risk that significant investment London will be larger than in any time in its history. in expanding London’s rail network capacity would The demand for London Underground and national rail be wasted: the scale of growth is unprecedented, travel is likely to increase by 60 to 80 percent by 2050. reflecting the city’s continuing prosperity. Cross linking services between pairs of existing central London terminals potentially represents an efficient way of addressing growth needs.
To date, growth in both employment and population has been under-forecast with investment plans then being based on those lower forecasts. The current Mayor’s Transport Strategy, which is the basis of the current investment programme, is based on growth assumptions far lower than those that have actually occurred during that period (since 2010). 16 National Infrastructure Commission
Case Study - Paris Overlaying the map of the RER on London demonstrates Although Paris has had a comprehensive metro system the large area that the RER covers and the ability this since 1900, realising the importance of Cross-city has to provide a large labour market to the City Centre links, the RER (Réseau Express Régional) network was of Paris. developed in the 1970s. This provides links across the city with fewer stops than the metro system (the London’s Crossrail and Thameslink lines work in this average distance between stations is four times that way, but Paris has shown that having a network of of metro stations) enabling faster journey times. The Cross-city lines, such as their five RER lines, can be RER services have helped to support the existing metro beneficial in increasing the available labour market system by adding capacity but also reducing the need for a City. for interchange. Paris has used its RER network to supplement its existing metro, whilst also bringing in In addition to growth within the Central Activity Zone, passengers from further away at distances unviable on Paris has developed multiple employment hubs. the metro network. Such cross-city lines may have played a part in the development of these in the same way that Crossrail 2 should unlock development potential in Upper Lea Valley Opportunity Area.
Figure 1: Paris RER network superimposed onto London
National Infrastructure Commission March 2016 Report
Large scale public transport infrastructure 3 development
3.1 Introduction
3.2 Current investment proposals
3.3 Transport investment options
3.4 Crossrail 2
3.5 Other alternatives to address the identified network gaps and opportunities
3.6 Regional transport investments
3.7 Possible refinements to Crossrail 2
3.8 Reviewing the Crossrail 2 case
3.9 Summary 19 National Infrastructure Commission
3.1 In addition, coming on-stream fully by 2020 will be the Introduction completion of Crossrail 1 (£15 billion) and Thameslink (£6.5 billion) – two high capacity regional express London benefits from a clear spatial planning routes, running east-west and north-south across framework, the London Plan, within which sits the central area and beyond into the surrounding the associated infrastructure needs – the Mayor’s shire counties. These two new routes will bring much Transport Strategy and the London 2050 Infrastructure needed connectivity improvements – for instance to Plan. These documents clearly set out the transport Heathrow, Canary Wharf, the West End, the City and key infrastructure investment that is felt to be needed by development areas such as Stratford and Old Oak. the Mayor and TfL, along with justification for such, principally the rapid ongoing and forecast growth in London Underground’s extension of the Northern London. line is under construction and will help broaden the accessibility map to newly regenerating areas in 3.2 Battersea. An extension to the Bakerloo line is under Current Investment Proposals development and if it goes ahead will help in a similar way in and south east London, but neither will add There is in place a substantial programme to increase capacity to the core central activity zone. The success the capacity of the London Underground, with new of the new orbital railway fashioned into the London train fleets, station upgrades and, by means of new Overground is partly measured in the growth in train control systems, higher service frequencies. popularity of new areas of employment growth in inner This includes maximising the capacity of the London north and east London. Underground: increasing train frequencies to up to 36 to 38 trains per hour across the Jubilee, Piccadilly The programme of investment33 for both line and and Northern lines with complementary investment in station upgrades on the London Underground and station capacity along those routes is also required. Overground is shown in Figure 3.1 and Figure 3.2 respectively. The value of current investment proposals is significant, examples being: Current investment34, however, is not keeping pace with growth. The Mayor’s current Transport Strategy • £5.54 billion in modernisation of the sub-surface was based on a daytime London population expectation Underground lines including new trains and of 4.7 per cent growth between 2008 and 2014 when signalling; the daytime population, which includes non-resident • £500 million on the Victoria Station Capacity commuters and visitors, has in fact grown by 9.6 Upgrade; percent. In terms of public transport, the increase in • £563 million on the Bank Station Capacity Upgrade; travel demand in terms of trips has been 17.6 percent, • £400 million on the Northern Line Upgrade; compared to an expectation of 4.6 percent, with a • £321 million on the London Overground Capacity 10 percent shift in net mode share towards public Improvement Programme; and transport, walking and cycling since 2000. • £260 million on new trains for London Overground services Liverpool Street to Chingford, Cheshunt and Between 2031 and 2041 it is expected that demand in Enfield, as well as the Barking to Gospel Oak line London will be such that crowding on the network will and the Romford to Upminster service. have increased to levels seen in 2011, despite the array of committed investments35. Overcrowding is one of the greatest barriers to disabled and older people travelling on the network36 and there will be an additional 70 percent of over 80’s by 2035 in London compared with 2015.
33 Fit for the Future Our plan for modernising London Underground, London Overground, Trams and the DLR, Transport for London 34 TfL, Crossrail 2 Business Case, 2015 36 Understanding the travel needs of London’s diverse communities, Transport for London, 2014 20 National Infrastructure Commission
Figure 3.1: Programme of London Underground Investment – Line Modernisation Source: Transport for London
Figure 3.2: Programme of London Underground Investment - Stations Source: Transport for London
The continuing growth of London places strains on The capital’s rail network, comprising both London its transport system, which if not met, will result in Underground and national rail (together with the DLR) is a downward spiral of overcrowding, poor service the only sustainable basis to meet the growth in travel reliability and congestion and additional costs for demand arising from the projected population and businesses and longer journeys for residents. employment forecasts. 21 National Infrastructure Commission
Proposed Strategic Development and Transport This includes a Zone 3 orbital railway which has been cited by the Mayor of London as a potential scheme to The London Plan identifies a series of Opportunity link suburbs together and a potential extension of the Areas. Opportunity Areas are London’s major source Bakerloo Line in to the Opportunity Areas on the Old of brownfield land which have significant capacity for Kent Road and further south. development – such as housing or commercial use - and existing or potentially improved public transport access. In total there are 38 Opportunity Areas and seven Typically they can accommodate at least 5,000 jobs, Intensification Areas. These cover almost 19,000 2,500 new homes or a combination of the two, along hectares of land, with the potential to deliver a with other supporting facilities and infrastructure. Also minimum of 300,000 homes and over 500,000 jobs. identified in the London Plan are Intensification Areas The areas range widely in size and capacity. The which are built up areas with good existing or potential Upper Lea Valley is the largest at 3,900 hectares, and public transport links and can support redevelopment covers four boroughs, the Lower Lea Valley has the at higher than existing densities. They have significant greatest capacity for homes, with a minimum of 50,000 capacity for new jobs and homes but at a level below projected and the Isle of Dogs has the highest projected that which can be achieved in the Opportunity Areas. employment capacity, at 110,000 jobs37. Figure 3.3 illustrates these development areas and also shows how they relate geographically to potential rail The GLA forecasts that London’s transport system network developments. could require some £475 billion of capital investment (enhancements plus renewals) in the 35 year period to 205038.
Figure 3.3: Opportunity Areas and Very Large Planned and Potential Transport Investments
37 Opportunity Knocks: Piecing together London’s Opportunity Areas, London First 38 The cost of London’s long-term infrastructure, GLA and Arup, July 2014 22 National Infrastructure Commission
3.3 The second component pressure is the current Transport Investment Options CAZ, where many new jobs in London are expected, and which is so hugely important to the national The pace of demand growth is such that more capacity economy. The existing CAZ as shown in Figure 3.4 will will be needed, beyond the levels that will be created by be ‘stretched’ both east and west, to embrace new these existing plans. Opportunity Areas.
The pressures are evident, in fairly equal measure, on The third component is the expected focus of growth the London Underground network and the national rail in London towards the east. While there are some network on its approaches to central London. There are locations to the north/north-east, west and south three key components to the capacity challenge: where significant development is possible (the Upper Lea Valley, Willesden/Park Royal and Chessington being • at and around the central London terminals; three examples of Opportunity Areas; the Wandle Valley • accessing the CAZ; and at Earlsfield being an intensification area candidate), • meeting the growth expected to the east side of most of the potential for both residential and London. employment growth lies in developments to the east, both north and south of the Thames, with the London The first component affects both rail networks. boroughs of Tower Hamlets and Newham likely to be The legacy of the Victorian period of infrastructure the greatest focus. In the absence of rail investment, development left major national rail terminals at a Opportunity Areas in East London may develop at boundary around the City/West End that creates a lower density, be less attractive for new housing operational inefficiencies and service limitations – and and reflect uses that are encouraged by road access means that commuters face time-consuming train-to- improvements, notably the river crossing proposals. train transfers in congested stations. One consequence is that major investment is needed at the terminals themselves. Crossrail 1 and Thameslink address these problems in a large measure for users of London Bridge, Paddington, St Pancras and (particularly) Liverpool Street. But the legacy boundary remains at Waterloo, Victoria and Euston (although major investment is underway at Victoria to help address this problem and is planned at Euston as a consequence of High Speed 2). It remains a key factor in the thinking of the current Crossrail 2 plan in regard to Waterloo in particular.
Figure 3.4: Central Activities Zone Source: Central Activities Zone Supplementary Planning Guidance (SPG), draft 2015 23 National Infrastructure Commission
For the London Underground network, these three There are (as yet unfunded) plans to carry out works components of demand pressure give rise to forecast to ease congestion on both the Waterloo and Victoria congestion on the central parts of the Northern lines routes, including the lengthening of peak services on (both branches), the Victoria Line, Waterloo and all main suburban routes into Waterloo and full re- City Line and the Jubilee Line, with more localised opening of Waterloo International Terminal to allow pressures arising on other lines including Central for service increases on the Windsor lines. However, and Piccadilly and parts of the sub-surface lines. The trains have in general already been lengthened to the capacity limitations for onward dispersal of passengers limits of the existing stations (and the London terminals from London terminals is most notable from Waterloo in particular), for example 12-car Thameslink trains on (towards the City and Canary Wharf), from Victoria (to the Brighton Mainline at peak times, and nothing is yet the West End) and from Euston (towards the City and committed that would permit additional services to West End). This is shown in Figure 3.5. run. The delivery of more passengers into Waterloo also For the national rail network, the overall effect is the adds to the need for onward distribution of passengers prospect of serious overcrowding of the network on the on a congested underground network. main lines approaching Waterloo and Liverpool Street – and to a lesser extent on the routes leading towards Paddington and Victoria, as shown in Figure 3.5.
Figure 3.5: Predicted 2031 AM Peak Crowding Levels on Underground and National Rail network Source: TfL, Crossrail 2 Business Case, 2015 24 National Infrastructure Commission
So the position is complex and spreads over the In some circumstances, it will make sense to plan geography of both rail networks. As well as responding investments as a strategic development as they are to the three generic challenges in a way that addresses in many cases interrelated. This is a change to most the weaknesses apparent at various parts of the current practice. network, there is the crucial opportunity to have investment create and release land value for additional In relation to cross-London links, the original plan housing. As noted in Section 4, these opportunities, for Crossrail 1 envisaged a tunnelled central section besides stemming from a general presumption towards reaching the surface and the existing railways lines in higher densities of housing in existing areas (a trend as short a distance beyond Paddington and Liverpool already apparent where national rail services offer Street as possible. Although the tunnelled section was good connectivity to the Central Activity Zone, both in to be extended further east so that the line could also Greater London and beyond), are located primarily in serve Isle of Dogs, essentially the configuration does the eastern Thames gateway area and along the Upper not add track capacity to the existing lines on the Great Lea Valley. Western Mainline and Great Eastern Mainline, although it does relieve the two terminal stations (Paddington It follows that there can be said to be multiple gaps in and Liverpool Street respectively) of large flows of the transport infrastructure (existing and committed) interchanging passengers. When it comes to new cross- when considered against the needs set out in the London lines, it may not be possible to keep the new Mayor’s Plan for London in 2050. No single transport build tunnelled sections so short both because of the intervention is capable of fulfilling all of these gaps. implausibility of immediate underground to surface connections (for instance at Victoria) and/or because of The best response in terms of infrastructure investment the need to expand capacity of the national rail corridor will be a combination of the following types of measure: approaching the terminus, potentially over a significant length. • further cross-London links (of the Crossrail/ Thameslink style) because, well-directed, these There are choices to be made too in terms of can resolve multiple weaknesses (gaps) and bring operational concept. It is notable that whereas the an intrinsically more efficient operation (reduced Victoria Line, for example, using automated train need for multiple central London rolling stock control and operating as a free-standing system with turnarounds which are wasteful of platform capacity, no operational connections to other lines is capable of and require larger train fleets and train crews); supporting a 36 trains per hour, the ‘inner suburban’ • completion of the Underground and DLR line by line pair of tracks into Waterloo can only manage half that capacity uplifts and extensions, and implementation throughput – 18 trains per hour (in the morning peak of measures to increase the capacity of the period and 16 trains per hour in the evening peak). If suburban national rail network, with metro-style capacity is the aim, segregation of operational routes trains and services where possible to support that allows for automated train control systems (such growth; and as that already used on the DLR) and short headways • selected main radial route development of the would be the preferred approach. With properly national rail network – noting that large-scale designed conflict-free junctions, this lends itself to a capacity uplifts will rarely be justified by serving trunk cross-Central Activities Zone line with multiple markets on a like-for-like basis (so connections to branches at either end, with lower frequencies on each airports or national high-speed rail connections offer branch. the best prospects). It is against this backdrop that further investment in London’s rail network needs to be judged. 25 National Infrastructure Commission
3.4 A feature of the Crossrail 2 plan as it is currently Crossrail 2 developed is that there is an option to extend a route to East London (shown in Figure 3.7 as an arrow Crossrail 2, Figure 3.7, was featured in the same pointing eastwards from a junction at Angel). Given the study of 1988 that identified Crossrail 1 as a preferred pressures of development in East London, adoption of investment (although both schemes have been this eastern branch would potentially create additional substantially modified since). It has the advantage access to developable land including for major housing of having progressed through initial consultations schemes. It is currently being studied, alongside other and much of the route has been subject to statutory alternatives, by TfL and the east London boroughs. protection. With this addition, Crossrail 2 could address the further growth area in the Thames estuary corridor. The further Against the set of ‘gaps’ and opportunities identified tunnelled construction would add additional cost here, Crossrail 2 scores well, and in particular it: however, so consideration may be given to the balance of aspects within the current scheme to ensure similar • is a cross-London route connected into national rail benefit, such as the New Southgate branch which lines at either end; although providing access to train depot facilities is not • relieves congestion and the need to interchange at expected to support the level of housing growth as a Waterloo and Euston (and to a modest extent at branch to the east would do. An eastern branch could Liverpool Street); be part of a phased construction approach. • relieves Victoria, Northern (Morden branch) and Piccadilly line congestion; • provided that the 4km route between Wimbledon and New Malden is 6-tracked, creates a substantial uplift in the capacity of the South West Main Line into Waterloo, meaning additional capacity for services from Hampshire and Surrey (and indeed Dorset, Wiltshire and Devon) that are subject to excess demand over significant distances; • provides direct access from SW London to the planned HS2 terminus at Euston; and • facilitates major housing development in the Upper Lee Valley and at Chessington.
This package of problems that it could solve are unique to the proposed Crossrail 2 scheme. 26 National Infrastructure Commission
Figure 3.6: Map of proposed Crossrail 2 route with potential route options Source: Crossrail 2 website 27 National Infrastructure Commission
Close Alternatives to Crossrail 2 Notwithstanding the issue of onward distribution at Waterloo, the Network Rail digital railway programme The principal alternatives to Crossrail 2 that have includes the adoption of higher levels of European Train been examined by TfL serve, at least in part, the same Control Systems (ETCS) level 3, than are being used on geography and problem-set addressed by Crossrail 2. Crossrail and Thameslink, and incorporation of driver They are: assistance and service management technologies. In combination with infrastructure investment at junctions • national rail network-based scheme to add a fifth and stations, and with changed operating practices, track to the Waterloo lines to add capacity from these technologies may allow an increase in the the south west into Waterloo; adding a West Coast throughput of existing lines, in terms of trains per hour. Main Line (WCML) branch to Crossrail 1 to address This could improve the benefits of the scheme. potential Euston area overcrowding; and a low cost While ETCS applications to busy commuter railways upgrade to the Lea Valley route; and at level 3 have not yet been implemented, and the • cut-back ‘Metro’ version of Crossrail 2 that would business cases have not yet been developed, in the operate between Wimbledon and New Southgate. fullness of time they may, with associated infrastructure investment, permit increased service frequencies and The scheme to add a fifth track to Waterloo is capacities on the national rail network. However, even unappealing on its own because the additional demand with the potential of such technology, without new it would support would need to be ‘dispersed’ from lines such as Crossrail 2, major rebuild of capacity- Waterloo on an unimproved London Underground critical locations such as Clapham Junction would be network and this has not been included as part of this increasingly essential as passenger numbers continue to package. The business case developed for the rise. national rail package noted above looks reasonable (and higher than that for Crossrail 2) but the TfL’s analysis suggests that the BCR of the cut-back contribution of each of its three elements cannot be Metro version of Crossrail 2 is lower than that for distinguished, and costings may now be out of date and the scheme as currently developed. So neither direct in need of upward revision. Studies have indicated that comparator looks to be a better approach (although the the Crossrail 2 ‘branch’ on the West Coast Mainline Crossrail 1 connection to the West Coast Mainline and has a ‘good’ BCR score, so this may be a reason for the upgrades to the Lea Valley appear to have stand-alone overall BCR result of the national rail package. merit). 28 National Infrastructure Commission
3.5 There are no other fully-developed major schemes for Other alternatives to address national rail expansion in central London, but neither the identified network gaps and Crossrail 2 nor the DLR Euston extension (separately or in conjunction) addresses all of the gaps identified. opportunities There is currency in the view that there is a case for a There are other schemes at various stages of third Crossrail scheme and one version of this would development, and some of these could be examined be to extend the existing Lea Valley line southwards in the East London Transport Study now underway. An from its end-point at Stratford to the Isle of Dogs and extension of the DLR from its existing terminus at Bank then southwards across the Thames to connect with to Kings Cross/St Pancras and Euston has been the the national rail network, possibly connecting with the subject of TfL feasibility studies and has a cost estimate Brighton Main Line and providing congestion relief to it. of around £2.5bn. If Tower Gateway station is closed Another proposition considered in the original Central and higher capacity trains are deployed on the DLR London Rail Study of 1988 was a southwards extension (plans for both of which are under consideration), then from the Moorgate (northern city line) terminus. At the this could create a valuable way of increasing capacity time this was conceived as a short tunnelled route to (with potentially a 40 trains per hour frequency) and London Bridge, but this possibility and the case for it connectivity between the West End, the City and the have been overtaken by events (including the adoption East London growth area, including the Isle of Dogs. This of the Thameslink scheme). A contemporary version project could be considered to be an alternative to an that could address remaining gaps might be to extend eastern branch of Crossrail 2. In any event, since both the line from its current Moorgate terminus to a new projects serve Euston/Kings Cross there would clearly be station at Cannon Street and thence to Waterloo (at merit in examining their inter-relationship and the scope which point the line could potentially be extended to for design integration and cost savings. Specifically the join a pair of the Waterloo line tracks in the Battersea Bank – Euston scheme could: area. This scheme could:
• address a major dispersal and London Underground • be a cost effective cross-London route connected congestion problem (the city branch of the Northern into national rail lines at either end, with only a Line) from Euston to the City; limited need for new tunnelling (and only two new • provide access to major development sites on underground stations); the east side of London and provide enhanced • relieve congestion at Waterloo and address the key connectivity from three important London terminals ‘dispersal’ problem of connectivity from Waterloo to the City and Canary Wharf/Isle of Dogs; to the City (relieving the Waterloo & City Line, on • provide a one-change alternative route between which the potential for capacity increase is limited) Waterloo and Docklands, relieving to some extent and, by interchange with Crossrail 1 at Moorgate, pressure on the Jubilee line; partially relieve the Jubilee Line too; • provide direct access from Canary Wharf to the High • provide a less costly alternative to the Crossrail 2 Speed 2 terminal at Euston; branch to New Southgate; and • provide a suitable means of passenger transfer • connect north London suburbs and Hertfordshire between Euston and St Pancras/Kings Cross (so towns (Welwyn Garden City, Hatfield, Hertford) linking High Speed 1 and High Speed 2); and with Waterloo/South Bank and South West London/ • by extending the Docklands Light Railway beyond Surrey. its original territory, providing better connectivity, facilitating housing development in the Isle of Dogs One other potential project that is likely to interface and the wider ‘Thames Gateway’. with Crossrail 2 and needs to be considered is the extension of the new Northern Line route from Battersea Power Station onwards to Clapham Junction. 29 National Infrastructure Commission
3.6 3.7 Regional Transport Investment Possible Refinements to Crossrail 2
At present London acts as a hub and interchange for The definition of Crossrail 2 has evolved through many national rail network journeys that with greater consultation and may yet evolve further (the question orbital connectivity could be undertaken without the of adding an eastern branch being a significant change, need to pass through Central London. This is true of for example). TfL has examined many options to see both long distance routes such as Southampton to if useful refinements can be made, including whether Cambridge, as well as shorter routes such as Kingston stations should be included; further extensions would or Sevenoaks to Croydon. As well as increasing demand be worthwhile; or route alignments should be changed. for radial routes into central London that adds to the requirement for capacity upgrades, it increases journey If the aim were to improve the business case as time and reduces the potential for modal shift. Enabling reflected in the project BCR, a number of further these journeys to be made through the provision of refinements to project scope might be considered. non-radial (that is, orbital) routes could unlock wider benefits. Options to reduce capital cost are limited, and most have been considered in earlier stages of the project’s An example of improved connectivity is the East West development. It might be possible to shorten the extent Rail (EWR) route (new railway from Oxford to Bletchley of tunnelling significantly and to join with the and increase in services on the onward section to national rail network in south west London much closer Bedford39). This scheme provides increased connectivity to Victoria, for example in the Battersea area – but this to the stations on the route, by more than doubling the is likely to lead to significant consequential changes to number of destinations accessible from EWR stations the best routes to feed from the south into the cross- away40. Such national rail network developments could London core, would mean not serving Chelsea and support an intensification of distributed development may not relieve Waterloo line capacity. Another (more on targeted urban centres across the wider south east. modest) version of this type of cost saving would entail examining a surface (in place of tunnelled) route for The zone 3 Orbital Railway as promoted by the Mayor Crossrail 2 in the existing rail corridor between Clapham of London (Figure 3.3) could help enable reduce the Junction and Wimbledon. There is land available along number of people travelling into Central London to the route with much of this being within Network Rail complete their through journey, relieving both capacity ownership, but this does not provide the same extent constraints at national rail termini as well as facilitating of benefit of the current scheme which helps to address shorter distance suburban journeys. the capacity constraints on the Northern Line, for which a separate branch would need to be added.
Stations in the Central Activity Zone are already at a minimum, with only a single station planned between Victoria and Euston. New underground stations outside the Central Activity Zone may provide cost savings if removed, for example at Chelsea and Angel, but benefits would be diminished if Angel was removed, possibly disproportionately.
39 East West Rail Consortium, 2015 40 East West Rail Economic Case Refresh, 2014 30 National Infrastructure Commission
Another approach would be to break the project into A fully segregated Crossrail 2 operation would bring distinct phases, as a means of reducing annual budget into play the idea of very high frequency operations (40 impact. Since it is a cross-London scheme this means trains per hour), and this may bring the opportunity a loss of operational benefits and interim terminus to look for capital cost savings (shorter trains offering arrangements would be required. A temporary depot the same overall capacity could mean smaller stations) would also be required to stable trains. But if it were and/or additional benefits to users. This would not be to be considered, it would most likely take one of two possible if it is not fully segregated from other mainline forms. The first would be to build either from the north services. or south to an interim terminus at Euston/St Pancras as a stand-alone extendable first stage. Or the central Benefits could be increased by many variations, but section (Victoria to Euston/Kings Cross) could be built as most would bring significant additional costs too. While a free-standing scheme (for subsequent extension) to there are clearly strong benefits in intercepting the address CAZ area congestion, leaving open subsequent Morden branch of the Northern Line (now planned at route extension choices. But this would not open up Balham), the extension of the tunnelled section of the housing development areas and would need to be Crossrail 2 route and the extension of all journey times configured to provide potentially expensive access to to/from south west London beyond Clapham Junction a depot site which would not help BCR performance. are offsetting disadvantages (as is leaving Earlsfield and As housing is a key driver of the scheme this should be its associated densification area potentially ‘stranded’). carefully considered prior to proposing. A potential future option could be to serve Balham on a branch from a direct Crossrail 2 route to Wimbledon, A further refinement would be to review the New and then there is the prospect of extending this line – Southgate branch, either to remove altogether or potentially as a subsequent stage from Balham towards deliver as part of a later phase. This branch does Streatham and the Brighton Main Line corridor (subject provide valuable depot facilities which would need to to appropriate land take). be provided elsewhere if not delivered at the outset or at all, but the development potential for this branch is The ‘fan’ of routes in south west London could also offer significantly lower than the housing growth that could the opportunity to provide better direct connections be supported elsewhere on the route, for example on between key locations such as Epsom, Kingston and the proposed route to the north through Upper Lea Twickenham, fulfilling an aim of providing some orbital Valley or indeed on a branch to the east. rail capacity in a part of London where this facility is largely absent and where there is significant scope to There are also ways by which the operating costs could reduce private car travel and therefore bring substantial change – and these can have a significant bearing additional benefits. A short link to connect Motspur on BCRs. Crossrail 2 is designed so that its services Park and New Malden would, for example, create a can be overlaid on top of existing services from the valuable orbital route based primarily on intensifying south west suburbs into Waterloo. This may lead to the use of Crossrail 2 branches. This could be part an over-specification of service levels on the various of a set of ‘local’ transport investment if larger scale routes used in south west London. A better approach development is progressed in Chessington. might be to presume that residual Waterloo services are withdrawn, since this brings three advantages – a saving in operating cost (fewer national rail services); the scope to introduce automated train control systems over the Crossrail 2 route which could then be operationally segregated from the main line network, reducing the operating cost of Crossrail 2 itself; and, the chance to provide additional services to Waterloo on longer distance routes that offer a positive financial contribution. Equivalent thinking could be applied in the Lea Valley corridor. 31 National Infrastructure Commission
3.8 As noted by the study authors “the techniques required Reviewing the Crossrail 2 Case for GVA analysis are far from settled and continue to evolve”. They go further to state that “if GVA metrics are The case presented for Crossrail 2 on the whole to become part of the appraisal process, there is a need follows DfT guidance with results as might be expected for clearer codification of the methods to be followed from such analysis. However, the sensitivities are less and the implicit mechanisms and assumptions on which prescribed in guidance and therefore assessment of the methods are based”43. the sensitivities tested within the analysis is presented here, with recommendations should further analysis be It is not within the scope of this review to provide undertaken as the project progresses. assurance regarding the reasonableness or the robustness of the analysis undertaken to generate In addition, as the assessment of GVA has less set estimates of the GVA impacts of Crossrail 2. However, ‘rules’ and the process evolves with the development of we acknowledge the active role of the TfL Crossrail 2 each large scheme, the range of benefits predicted for Appraisal Panel had in advising upon the specification Crossrail 2 is large. A more detailed review of these are and delivery of this piece of analytical work, and therefore presented here. therefore have no grounds to believe that the approach is not reasonable, or that there has not been sufficient space and time for proportionate levels of quality Crossrail 2 Strategic Case: National GVA Impacts assurance to be carried out.
The DfT’s analytical assurance guidance Strength in Also noted by the study authors is the “relatively Numbers (2014) sets out the framework within which it wide range of potential outcomes” from the analysis. expects analysis to be specified, produced and used41. This spectrum of outcomes is driven by the range of In particular, where analysis is used to inform decision- assumptions that could be adopted regarding: making (either by Ministers or Investment Boards) it should be accompanied by an Analytical Assurance • the additional employment capacity generated and Statement, jointly prepared by the responsible analyst filled by Crossrail 2; and policy-maker. • the impact of this additional employment on UK economic density; and In reviewing the assessment of national GVA impacts • the relationship between changes in economic produced to inform the Crossrail 2 Strategic Case it density and productivity. is helpful to consider the dimensions required by an Analytical Assurance Statement to convey to decision- By way of illustration, the sixty year present value of makers the strengths, risks and limitations of the way GVA impacts ranges from £16bn (assuming low take- analysis has been conducted and the uncertainty in the up of additional employment capacity in the central analytical outputs42. They are: activity zone and correspondingly large reductions in employment density elsewhere in the UK) to £102bn44. • reasonableness: the scope for challenge to the While having a large range of potential outcomes analysis; provides decision-makers with considerable scope • robustness: the risk of an error in the analysis; and within which to express their own judgement on the • uncertainty: the uncertainty inherent in the analysis likely impact of Crossrail 2, it does little to provide and the extent to which this has been reduced by evidence to support strategic arguments regarding the the analysis itself. case for intervention, and may invite criticism that the analysis could be used to justify any policy outcomes.
41 Strength in Numbers, Department for Transport, 2014 42 TfL, Crossrail 2 Business Case, 2015 43 Transport Policy, Appraisal and Decision-Making, RAC Foundation, 2015 44 All monetary values expressed in 2011 prices 32 National Infrastructure Commission
This is not unusual for strategic schemes which rely Crossrail 2 Economic Case: Sensitivities upon wider economic conditions and the consequent actions of economic agents across a range of sectors The Crossrail 2 economic and value for money case46 and geographies to secure the realisation of wider reports the output of a range of sensitivity tests applied economic benefits. However, narrowing the range of to the preferred crossrail 2 Regional scheme. These residual uncertainty will help to reduce the likelihood include sensitivities to: of a decision based upon the analysis being successfully challenged. • land use change (dependent developments); • timing (phased delivery); At this point in the development of Crossrail 2 it is not • demand (and therefore benefits) growth; possible to attach a likelihood or probability to the • fares policy; range of potential GVA outcomes reported. However, • risk and optimism bias adjustments; and further work should be undertaken to identify a ‘most- • do-minimum network assumptions. likely’ central scenario which represents an evidence- based ‘best-guess’ of the GVA impacts of Crossrail. This Overall, the sensitivities tested appear sensible and may be based upon existing empirical evidence, further cover a broad range of both positive and negative supplementary analysis to contextualise the scenarios unknowns. At face value the impacts of the scenarios examined, or through structured but, ultimately, upon the BCR for Crossrail 2 appear in line with subjective techniques such as Delphi-surveys. expectations, although in many cases no impact can be ascertained as BCRs are only reported to one decimal When compared to free-standing improvements to place. transport networks, city transport plans are much more likely to involve considerations of synergy and balance. Where possible, if the likelihood of different outcomes This means moving away from the detailed economic can be quantified, we recommend they are included appraisal to a higher-level logic map or narrative. In within a risk-based approach rather than analysed as this context the assessment of national GVA impacts of discrete scenarios. This would allow TfL to analyse the Crossrail 2 is an important piece of work which helps to impact of many of these factors, acting together, on the bridge the gap between a vision statement on the one returns to the investment, and hence determine the hand, and a detailed transport appraisal on the other. likelihood of different levels of return. A key advantage of using such an approach is that it guards against Analysis of this kind should cover the middle ground of excessive weight being placed on extreme outcomes what difference the project can be expected to make. that would require the coincidence of a set of unlikely In other words, it should respond to the question of events to occur. whether visions of a transformed future are simply hype, or whether there a clear evidence base to support Three of the sensitivities have been reviewed in more them. As such, the analysis needs to be considered detail in order to understand whether there are within the context of a much wider evidence base additional tests that could be undertaken prior to or which informs all five-cases of the HM Treasury Business during the progression of the business case to the full Case model45. Taken in isolation, such studies may be business case. Recommendations are identified in the viewed by critics as advocacy rather than analysis. In summary. conjunction with other analysis, such studies are an important part of the balanced body of evidence which should be used to inform good decision-making.
45 The Green Book, Appraisal and Evaluation in Central Government, HM Treasury, 2011 46 TfL, Crossrail 2 Business Case, 2015 33 National Infrastructure Commission
Land Use Change credible signal to developers that a particular place will develop. As noted by Venables (2015) “if this In the central case, land use assumptions are consistent resolves the coordination failure then the return to the between the do-minimum and do-something scenarios, investment can, potentially, be many times greater than as required by webTAG. For a scheme of the magnitude the user-benefits alone.49” No such impacts are picked of Crossrail 2, however, we would expect to observe up within the sensitivity tests applied. significant land use changes in the vicinity of stations. While the extent of land-use change will be constrained In light of the discussion above, a far broader range of by the availability of land and premises, there is land-use changes would be expected to be considered considerable potential for additional residential, retail within the case for Crossrail 2. These should cover and commercial land use relative to the do-minimum residential and non-residential developments, and scenario. explicit attention should be given to the role of transport as a catalyst for improving coordination in The only sensitivity test that includes changes to land other sectors. use is the ‘funding case central case’ scenario which includes net additional housing of 130,000 dwellings Demand Cap that are assumed to be developed by 205147. However, since the sensitivity test also includes a number of In the central case demand is capped in the final other changes from the central case, it is not possible forecast year of 2041, ten years after the scheme to identify the impact of land-use change in isolation. In opening year. This is in-line with current webTAG the absence of specific evidence regarding the impact guidance which typically recommends that demand of the additional housing it is not possible to comment growth should be capped after a twenty year period on the magnitude of land use change in absolute or from the year in which the appraisal is undertaken, relative terms. with sensitivities to a cap of ten and thirty years also presented. However, for some interventions, particularly In addition to more homes, we might also expect large infrastructure schemes with extended design businesses to relocate in the vicinity of stations within and delivery periods, alternative approaches may also the city centre in order to take advantage of a deeper be considered. Despite limited information to justify labour pool (business services) and increased footfall the specific approach used, it is clear that Crossrail 2 (consumer services and retail). As with residential land falls into this latter category. Sensitivity tests of higher use it is important to understand the extent to which and lower demand growth rates are considered, any changes that are dependent upon the transport alongside a ‘central growth uncapped’ scenario in which intervention can be considered ‘additional’ i.e. would demand (and therefore benefits) and fares/costs are not have occurred in the absence of Crossrail 248 unconstrained beyond 2041. Moreover, interdependencies between transport investment, land-use policy and wider urban and It should be noted that capping demand is simply one regional development could be exploited to overcome of many methods for extrapolating long-term benefits. coordination failures in which private developers Doing so helps scheme promoters to avoid placing are unwilling to invest in an area due to uncertainty undue weight on increasingly uncertain projections regarding the return on their investment. Transport generated by transport models over long time horizons. infrastructure of the scale of Crossrail 2 delivers a However, capping demand at a pre-determined level or at some point in time introduces a discontinuity into projections of future benefits that is unlikely to reflect the market dynamics we would expect to observe in practice. It also implicitly assumes that trip rates (per person) will contract indefinitely beyond the demand cap.
47 TfL, Crossrail 2 Business Case, 2015 48 DCLG’s guidance on assessing the impacts of spatial interventions defines additionality as “The extent to which activity takes place at all, on a larger scale, earlier or within a specific designated area or target group as a result of the intervention’’ 49 Incorporating Wider Economic Impacts within Cost-Benefit Appraisal, International Transport Forum Draft Discussion Paper, Venables A.J., 2015 34 National Infrastructure Commission
By assuming that demand growth ceases completely In the case of Crossrail 2, the rates of optimism bias beyond a predetermined cap year current practice applied are commensurate with webTAG guidance for is likely to underestimate the benefits of rail-based the current stage of scheme development. They also interventions and may lead to the under-provision of incorporate insights drawn from experience delivering rail services. In the absence of any empirical evidence Crossrail (in particular recognition that similar rolling regarding the likely trajectory of long-term demand and stock will be required) and benchmarking against benefits, a range of alternative methods for considering Thameslink costs. Ideally, however, these reductions long term demand and benefits growth can be would be justified in-line with the process described considered. These options are described in detail within in HM Treasury’s supplementary Green Book guidance Bates et al (2013)50, ‘Specifying the demand cap for rail.’ regarding optimism bias53.
One such approach involves extrapolating demand For most schemes we would not expect a QRA to be (and therefore benefits) beyond the final forecast year carried out until later in the scheme development in-line with population growth. This has a number of process. However, since outputs from such an exercise attractive features compared to the current approach. It are available for Crossrail 1, it seems sensible to exploit is straightforward to implement, can easily be explained the additional information that is available. In particular, and rationalised and avoids demand growth falling since it is possible to derive a statistically robust to zero abruptly beyond the final forecast year. We understanding of the likelihood of different outturn recommend that such a sensitivity test is prioritised costs occurring, established statistical techniques can within further work on the case for Crossrail 2. be used to analyse how the scheme’s value for money changes with specific assumptions on costs. Risk and Optimism Bias A key advantage of using such an approach is that In the central case for Crossrail 2, adjustments for it guards against excessive weight being placed on risk and optimism bias have been applied in-line with extreme outcomes. For example, assuming that the QRA webTAG guidance as set out in the formula below: has captured the full range of risks (both upside and downside) to scheme costs, there is only a 20 percent Risk and optimism bias adjusted cost = chance of outturn costs exceeding the P8054 estimate. (Base Cost excluding QRA) + (1+Optimism bias) We recommend, therefore, that where the likelihood of different values can be quantified in this way, they As can be seen from the formula, at this stage in a should be included within a risk-based approach rather project’s development any measure of Quantitative than analysed as discrete scenarios. Risk Analysis (QRA) and contingency should be excluded from the definition of costs, even where the outputs of It is clear that the out-turn cost of Crossrail 2 will impact such an exercise exists. Only once schemes are more on the value for money, which is why maintaining a narrowly defined and further developed (typically at a vigorous and disciplined approach to cost control should level equivalent to Network Rail’s GRIP51 stages 4 to 5) be a key priority for TfL. should QRA outputs be included within a central case assessment52.
50 Specifying the Demand Cap for Rail, Bates J., 2013 51 GRIP is Network Rail’s Guidance to Railway Infrastructure Projects process and methodology for identifying, assessing and delivering national rail projects. 52 In doing so, the mean estimate (Pmean) from the QRA should be included in the costs before optimism bias is applied 53 Supplementary Green Book Guidance: Optimism Bias, HM Treasury, 2013 54 P80 estimate is used in accordance with webTAG and is the 80th percentile cost, representing the probability of the final cost being less than 80% of the estimate 35 National Infrastructure Commission
3.9 Summary
Crossconnecting existing radial lines with over-stretched central London terminals and congested onward distributor networks represents a highly efficient model for London’s rail network development.
While the currently assessed economic case for Crossrail 2 is not strong, this is in part because the housing growth it is expected to unlock is in effect precluded from entry into the appraisal metrics.
There are other schemes which also need to be considered alongside Crossrail 2, given the substantial growth in demand expected through to 2050. Whereas in the past it was reasonable to plan new underground lines as free-standing schemes, there is a need now to consider a programme of complementary measures, one of which would be Crossrail 2. The interplay between these investments and in particular their timing needs to be considered.
A number of ways in which the case for Crossrail 2 could be enhanced have been considered and the opportunity to add an eastern limb would appear to be a crucial potential development. It is important to note that the BCR could also be improved with a reduction in costs. For example this could be through removing stations that provide a smaller benefit but have high construction costs.
The most critical of the sensitivities considered is testing additional demand scenarios with demand growth increasing beyond the final forecast year. In addition, using a risk-based approach rather than discrete scenarios should be undertaken, where the risks can be quantified.
National Infrastructure Commission March 2016 Report
4 Housing
4.1 The role of transport in facilitating housing delivery
4.2 Unlocking the potential of transport-led housing delivery
4.3 Crossrail 2 and housing
4.4 Crossrail 2 route alternatives to maximise housing delivery 38 National Infrastructure Commission
4.1 The role of transport in facilitating Land values are important in this context for two housing delivery reasons in particular. Firstly there are a few parts of London (mainly in the east) where residential land Transport influences housing delivery through two main values are not significantly higher than commercial (and inter-related) mechanisms – planning policy and values. Given the high levels of contamination and land values – with the latter capturing a range of other the associated risk and need for remediation, this effects. can be a barrier for delivery of some housing sites. Public transport can therefore help to remove viability In London, the density at which new housing can constraints through increasing land and property values, be delivered is directly linked to Public Transport promote changes of use e.g. industrial to residential Accessibility Levels (PTALs). PTAL is a measure of and support increases in the density of development the accessibility of any particular point to the public thus increasing efficiencies in the use of land. Secondly, transport network, taking into account walk access the uplift in value can have revenue implications for time and service availability55. The higher the PTAL, the the public sector, which can in turn help raise funding higher the number of homes or rooms that are allowed for transport schemes. Public revenue sources such as on any given plot. A scheme such as Crossrail, when the Community Infrastructure Levy, Stamp Duty, and combined with improvements to local buses, can lead Council Tax all have a link back to values. to significant increases in PTAL which in turn leads to higher allowable densities. Table 4.1 summarises the PTAL Suburban Urban Central (broad) relationship between PTAL and housing density 0 40 46 46 (measured in dwellings per hectare) as set out in the London Plan. 1 40 56 64
56 91 132 These policies in turn influence land values. Higher 2 density development will usually yield greater profit and 3 64 109 158 therefore higher land values. 4 76 123 238 Land-values will also be increased by increased 5 97 174 301 demand to live in an area that has improved public transport, especially large-scale infrastructure such 6 115 225 355 as the national rail network. Such infrastructure can significantly improve journeys to work and promotes Table 4.1: Public Transport Accessibility Levels (PTALs) and development units Source: Summary of data provided in London Plan, 2010 more sustainable forms of living by placing more people within easy access of public transport modes and important shops and services – thereby enhancing quality of life.
55 PTAL includes walking time from origin to the public transport access point; reliability of the service modes available; the number of services available within the catchment; and the average waiting time. 39 National Infrastructure Commission
4.2 of transport infrastructure investment on development Unlocking the potential of transport-led including: housing delivery • Jubilee Line Extension - there is evidence to Where transport serves areas that have particular suggest that residential development has increased planning designations the case for Crossrail 2 at a faster rate in the JLE corridor than in the other assumes that these would need to be changed. Such parts of East London since it was approved55. designations currently include: Once the line was implemented, development growth around stations along the line exceeded • strategic Industrial Land (SIL) – and local expectations. The scheme generated a total equivalents; property value increase around Canary Wharf and • green Belt and Metropolitan Open Land; and Southwark stations of £2.1bn in the first three years • policies that restrict height or density. after opening (1999-2002). • Langdon Park Station, DLR - this station (formerly For Crossrail 2 (a large-scale regional scheme), the main known as Carmen St) was planned on the original opportunities for major development will be on SIL and routing but never came to fruition. Years after the Green Belt designated land. DLR became operational, a station in this location opened. The evaluation report concluded that In most places residential land values will be so much the new station ‘generated a step change in local higher than existing use values that simply changing development activity’ but that ‘average property policy is likely to be enough to promote change, but values in Langdon Park have not risen faster than in some form of land assembly would allow a more Stepney or the rest of Tower Hamlets’56. comprehensive approach to development e.g. through • Crossrail 1 - A report into the property impacts Compulsory Purchase Orders (CPOs), as well as of Crossrail 1 highlights that even before its capturing more value, and mechanisms such as Local completion the route is ‘already having an impact Development Orders (LDOs) can speed up and create on investment decisions’. Changes are expected more confidence/certainty in the planning process. to be most significant at Stratford, Custom House The ability to apply the ‘no-scheme works’ validation and Brentwood. The impacts of the early stages assumotion in compulsory acquisition substantially of the project have not had a clear influence enhances the ability to capture land value increases and in locations along the route. However, impacts should not be under-estimated. are expected to become more pronounced as the scheme progressed. The report did state, There are other barriers to delivery, including: however, that in trying to identify the impacts of the pre-construction phase of the development • the need for complementary investment in other is complicated by the fact that it relies on historic infrastructure (e.g. schools, local transport etc.); data it is more difficult to disaggregate the direct • the ability of the housing and construction Crossrail effect from other influences on local industries to deliver (and fund) an increase in property markets57. output; and • local and political opposition – in outer London higher density has traditionally been resisted and outside London there is significant opposition to large increases in housing delivery.
There is a range of evidence from studies of the effects
55 The Jubilee Line Extension Impact Study – Main Findings and Lessons Learned, Association for European Transport, 2004 56 No Train, No Gain: The Local Economic Impact of Langdon Park DLR Station, Dave Arquati, Principal Transport Planner Transport for London, 2013 57 Crossrail Property Impact Study, GVA, 2012 40 National Infrastructure Commission
• Northern Line Extension - required to unlock Within London the GLA can use its planning powers the potential regeneration at Vauxhall, Nine Elms (including plan-making) to ensure changes in policy and and Battersea Opportunity Area – ‘many of the delivery. Outside London, the GLA can use the Duty to new homes and jobs in the VNEB OA are directly Cooperate, but requires reform to be effective. dependent on construction of the NLE’58. • London Overground - unlike many major There appears to be a need for some form of multi- infrastructure projects such as Crossrail, the local authority plan that aligns housing delivery with Overground came into being quickly with only a year infrastructure investment. This could substantially between TfL announcing that it was to take over reduce the risk that housing delivery will not follow the service and going live. Much of the line already infrastructure investment. This has been a feature of existed so change was in the form of improved some of the devolution deals that Government has trains, stations and frequency of services as well agreed with combined local authority areas across the as the new links. The addition of the Overground country. to the tube map is considered to have been a particular ‘boon’ for the areas it serves. ‘Previously Those counties which could be impacted by Crossrail overlooked locations have been brought to the 2 e.g. Hertfordshire and Surrey, support plans for forefront of property hunters minds… both prices the regional option for the route. Historically these and activity have not only outperformed the local counties, however, have failed to deliver against their areas in which the stations sit but also the wider own housing targets and it is known that no local plan London housing market’59. on the edge of London has so far even consulted on the option of meeting some of London’s need. The Transport related development in ‘Journey to Work’ Mayor of London has submitted representations to the Counties government’s Local Plans Expert Group to the effect that the mechanisms currently available through the Delivery of housing in these areas is (mainly) not Duty to Cooperate60 are inadequate to achieve the constrained by regional transport capacity. The main necessary change. constraint is Green Belt, local infrastructure, and local opposition to house-building.
The ability of London to accommodate the levels of population and economic growth anticipated is likely to require an approach that looks beyond London’s boundaries. Therefore, a collaborative approach to growth is likely to be required – if not in the short term then in the longer term. There are strong strategic inter-dependencies between London and the wider South East that underpin their success. This relationship is already being recognised through dialogue that has started to take place between London, East and South East England at events such as the Wider South East Summit (March 2015). The Mayor’s Growth Commission is also examining these opportunities.
58 Public Inquiry Decision Letter from the Secretary of State for Transport, November 2014. 59 Market Insight – Going Overground, Hamptons International, 2014 60 Duty to Cooperate - places a legal duty on local planning authorities, county councils in England and public bodies to engage constructively, actively and on an ongoing basis to maximise the effectiveness of Local and Marine Plan preparation in the context of strategic cross boundary matters, Localism Act, 2011 41 National Infrastructure Commission
4.3 Feasibility and Desirability Crossrail 2 and Housing The capacity for this scale of land-use change has been Crossrail 2 has a number of apparent objectives. explored in the Crossrail 2 studies61. AECOM and GVA For example, Crossrail 2 will help reduce congestion consider that the release of an additional 130,000 and create capacity on the central London rail and homes would not represent a significant departure from underground network, as well as relieving pressure existing policy and we agree. We consider each of the on main line national rail termini but it also has a principal components is realistic. distinct role in delivering housing growth for London, both generally but also specifically. The strategic case Building to a higher residential density in suburban for Crossrail 2 identifies the potential for it to unlock London is not inconsistent with policy, so long as public 200,000 homes. The case also relies on that outcome transport accessibility improves. In fact, the Mayor of being achieved. London’s density matrix is regularly exceeded and the Mayor of London tends not to object to development The ability to facilitate large-scale housing development on density grounds per se but to be more concerned is important in a number of respects: about design and sustainability. In newly developed Opportunity Areas, in particular, master planning led • housing in close proximity to stations will generate by the Mayor of London’s team positively encourages fare revenue; higher densities. At Vauxhall Nine Elms Battersea, for • providing much needed housing for London forms instance, virtually every development exceeded the an important part of the wider benefits of the density matrix – and was consented before Transport scheme, whilst the uplift in land value generated by and Works Act approval was achieved for the Northern residential development will feed directly into the Line Extension on which the higher densities depended. calculated business case; and • land value capture can help fund Crossrail 2. The London Plan recognises that there will be a phased release of Strategic Industrial Land and paragraph Releasing the potential for so much housing 4.23 of the London Plan specifically provides that development, however, requires at least 3 elements “the release of surplus industrial land should as far as of planning policy change, each of which may be possible be focussed around public transport nodes to considered controversial, i.e: enable higher density redevelopment, especially for housing”. AECOM/GVA report agreement with the GLA • the development of greenfield, including Green Belt that the scale of industrial land release on which their sites; Central Case is based is comparable to that anticipated; • the increased density of development; and • the re-designation of current Strategic Industrial • the central case assumes relatively small scale Land. development in the Green Belt with only around 10 percent from Green Belt or greenfield development Questions inevitably arise about whether the scale of (AECOM/GVA paragraph 6.2.19). land use change is feasible, desirable and deliverable.
61 TfL, Crossrail 2 Business Case, 2015 42 National Infrastructure Commission
Achieving 200,000 homes would require more The key difference between the Central Case and the significant policy changes and, particularly, increased 200,000 homes appears to be the amount of land that release of both SIL and Green Belt. Whilst that may is released rather than the change in density. appear ambitious from today’s perspective, it is important to note the strategic context for future For example, Vauxhall Nine Elms Battersea (VNEB) planning policy in London. Opportunity Area is on average being delivered at 350 dwellings per hectare (on a site by site basis, ie To get to its Central Case, AECOM has proposed a excluding roads, parks, office space etc). The Isle of revised Density Matrix for the London Plan which is Dogs is closer to 400+ dwellings per hectare, with some typically around 50 percent higher than the existing sites significantly higher (e.g. South Quay Plaza at 700 one. Table 4.1 sets out the existing densities presented dwellings per hectare). within the GLA’s Strategic Housing Land Availability Assessment, whilst Figure 4.1 presents the potential for additional growth delivered by Crossrail 2.
Gross Additional > Net Additional >
Do Minimum Gross: 60, 000 homes Net: 0 homes 60,000 Secures and accelerates delivery
Current Practice Gross: 110,000 homes Net: 50,000 homes 48,000 Based on current planning 2,000
New Policy Gross: 190,000 homes Net: 130,000 homes 115,000 Based on new planning policy 15,000
Test 1: Further Change to policy or more favourable conditions 150,000 Gross: 210,000 homes Net: 150,000 homes
Test 2: Further Change to policy or more favourable conditions 200,000 Gross: 260,000 homes Net: 200,000 homes
Figure 4.1: The potential for Crossrail 2 to deliver 200,000 homes Source: TfL, Crossrail 2 Business Case, 2015 43 National Infrastructure Commission
The key issue is often setting and design. For example, It follows in principle that the changes to policy the topography of the land between the Lea Valley line constraints required for Crossrail 2 to facilitate 200,000 and the River Lea is such that very tall buildings could homes are already in train. The release of Green Belt be appropriate and an overall density of 300+ dwellings and industrial land is already happening, but Crossrail 2 per hectare could be designed in such a way as to will enable this release to happen in a more structured be appropriate for the setting. This would be central and sustainable way. London levels of density which would be new to outer London and potentially controversial but the purpose of The scale of housing release predicated, therefore, is planning at that density would be clear and the effect both feasible and necessary. would be to save further land release. Properly planned and designed, we consider this to be achievable. It should also be noted, that Strategic Industrial Land (SIL) is often not strategic. It is a consequence of a The Strategic Housing Market Assessment for London designation made more than twenty years ago and 201362 identifies an Objectively Assessed Need (OAN) often simply reflects where industry was located. of between 49,000 and 62,000 homes per annum. Many of these locations are not well connected to the Paragraph 14 of the National Planning Policy Framework strategic road network so cannot function the way the expects planning authorities to plan positively to meet designation suggests. This would apply to, for example, their OAN. For example, paragraph 84 of the National Brimsdown which is halfway between the M25 and Planning Policy Framework sanctions Green Belt the A406 but connected by a relatively congested road changes where this is made necessary by the plan’s (although it is home to some large-scale bad neighbour requirements for sustainable development and national uses). policy also requires existing constraints and designations to be reviewed in order to address development Significant areas of SIL also contain uses that do not requirements. fall within the definition, for example, churches and wholesalers. There is therefore a question about Therefore, with or without Crossrail 2, London has to whether that needs re-providing in the location, or if address these issues and there is already clear evidence it can be provided as part of mixed-use scheme as it of change, including: is not a bad neighbour use. There is some scope for double-decking warehouses but even in congested • the London Borough of Redbridge is reviewing west London in Park Royal and around Heathrow it has its Local Plan and planning significant Green Belt not yet become very common (although there may be release; other reasons for that). • the London Borough of Enfield is consulting on its draft Local Plan and explicitly recognises that the The scarcity of land and rising land values is and will in requirements for housing growth will require either any event increasingly lead to greater efficiency, with the de-designation of SIL or the release of Green lower value uses relocating to lower value locations. Belt land (or both); and There is bound to be more that can be achieved in this • many London boroughs and suburban authorities way and a number of London activities can inevitably be (for instance in Surrey and Hertfordshire) are undertaken from outer London locations, such as M25 preparing new Local Plans to accord with the towns, London Gateway or further afield. This is part of National Planning Policy Framework and a number a continuous process of adaption which has been going have commissioned Green Belt reviews. on for decades but which has been slowed in the Upper Lea Valley due to low values. It should not automatically be assumed that land and industrial uses need to be replaced, at least not in London and neither is the case proven for compensating Green Belt release.
62 Strategic Housing Market Assessment for London 2013, GLA, 2013 44 National Infrastructure Commission
Deliverability The Government could generate policy support for Crossrail 2 by endorsing a recommendation of Deliverability in this sense means both deliverable the National Infrastructure Commission, making a by the market and deliverable through a necessary Ministerial Statement or producing a National Policy consenting regime. Statement. Each of these is easier for the rail route, however, than it is for the significant land use change on Above, we have identified those studies which which Crossrail 2 is dependent. confirm the well-known understanding that transport infrastructure can transform property values and There would be little purpose, for instance, (or business facilitate viable development. In this context, the case) in routing Crossrail 2 along the Upper Lee Valley prospect of Crossrail 2 is already having impacts on the unless it was clear that a significant land use change property market. For example, the London Borough of would be achieved – particularly the de-designation of Enfield is seeking a development partner for Meridian strategic industrial land and the release of Green Belt Water, a large area of low quality industrial and mixed land in the vicinity of stations. The necessary certainty use which has not historically attracted significant that land use change would be achieved, however, residential development interest. With the prospect of a requires planning policy to be in place. There are Crossrail 2 station at Angel Road, however, three leading options for planning policy formulation including: developers are short listed and competing strongly for the opportunity to build a minimum of 8,000 homes • the review of the London Plan – although that would but with the prospect that Crossrail 2 would release the only cover part of the route; potential for significantly more homes. • encouragement from Government that the constituent authorities along the route (particularly In the short term, therefore, deliverability is more to the north and to the south) should produce joint concerned with two more pressing practical problems: strategic local plans for the route (using powers of direction being obtained through the Housing and • the ability to achieve the necessary consents; and Planning Bill); and • the potential to manage the delivery of the • Government policy, such as a National Policy development unlocked by Crossrail 2 in order to Statement (assisted by a legislative change that ensure that it comes forward appropriately and in would allow a National Policy Statement and a order to maximise the potential to capture value subsequent Development Consent Order application from that development. to deal with more than “an element of” housing).
There are alternative potential consenting regimes Each of these options, however, requires the for Crossrail 2 including a Hybrid Bill, a Development preparation of policy, public consultation, environmental Consent Order under the Planning Act 2008 and assessment and the examination and endorsement of potentially either of these combined with Town and policy. It is difficult to imagine such a process taking less Country Planning Act powers taken, for instance, by a than approximately three years, which suggests that Mayoral Development Corporation. A genuine difficulty any final endorsement of Crossrail 2 should be deferred arises, however, from the need to co-ordinate the until that policy is in place – otherwise the decision selected consenting regime with the availability of the would inappropriately pre-judge the outcome of an necessary policy support. important planning policy process. Progresssing Crossrail 2 in parallel my be possible but it would need to be very carefully done to avail the challenges that controversial land use policy change was being pre-judged. 45 National Infrastructure Commission
The scale and significance of Crossrail 2 is such that the A National Policy Statement under the Government should consider a bespoke consenting and Planning Act 2008 delivery regime. There is a clear case for the promoters A scheme-specific National Policy Statement would of Crossrail to also promote the land use change which be effective in many ways but handicapped in this it would facilitate and on which it depends. Such an case because the emerging freedom in the Housing approach would offer the benefits of certainty that the and Planning Bill to include housing in development land use change would be achieved and enable it to be consent order applications is limited to “an element of co-ordinated to achieve an optimum outcome, rather housing” and would not be sufficient to support the than being left to existing land owners to take up scale of housing necessary – unless the Bill is amended. (or not) in a piecemeal fashion. However, it is probably now too late to make such a substantive change. Such direct delivery would also maximise the potential for value capture. The Compensation Code allows the A Joint Local Plan prepared by the Mayor of London value up lift of the scheme to be discounted from the and each of the constituent authorities along the route acquisition price of land where a CPO is necessary This would probably require two Joint Local Plan (JLPs) – enabling the promoter to benefit from that up lift. - one for the Upper Lea Valley and beyond to the north Additionally, such a promoter could hold land for and one to the south, but it could be an effective and the longer term in order to realise the enhanced democratic way of coordinating land use change. Many land value achieved by the regeneration benefits of authorities already voluntarily prepare JLPs with their comprehensive, sustainable development. neighbours but there is no ability at present for them to be compelled to do so. However, the Government is The National Infrastructure Commission should taking powers in the Housing and Planning Bill to allow recognise these complexities and the need for a special the Secretary of State (SoS) to intervene more directly policy, consenting and delivery regime. in plan making and those powers could allow the SoS to require the authorities to prepare a JLP and to Specifically, a policy framework needs to be created indicate the timescales and governance arrangements to support and sanction the land use change on which that should apply. This, therefore, is new territory but the case for Crossrail 2 depends (and which Crossrail it is in fact well suited to the purpose of the necessary 2 would facilitate) – either as part of the same policy local policy formulation. This approach would need framework that would be used to endorse Crossrail to be supported by a statement of government policy 2 itself, or a complementary but contemporaneous - this could simply be a Ministerial Statement based framework. Government has options in this respect, on a recommendation from the NIC and it could but some would be more effective than others and the effectively advise the outcome that is expected from choice depends on how directive and interventionist the joint plan. Any Statement (to inform this or another government is prepared to be: route) would need to be carefully worded to avoid the challenges that followed the HS2 announcement The London Plan - the more directive it is the more it may need to be Use of a revised London Plan is not ideal as its underpinned by a Strategic Environmental Assessment. finalisation will be complicated and slowed by the wide This is a good option for establishing a local policy range of other issues that it needs to address and, framework to plan for change. A JLP would establish importantly, because it does not cover a significant clear and relatively detailed development plan support, length of the route that is outside London and which is bringing more confidence that the necessary land use where some of the significant changes need to happen. change would be achievable and that its consequences The next London Plan will need to reflect and support could be planned and supported in a coordinated way. rather than carry the principal policy decision. 46 National Infrastructure Commission
It would also allow local engagement and control over SDOs do not provide CPO powers. In practice, however, local outcomes. However, a JLP would not deliver SDOs have hardly ever been used and are not well change as it would rely on land owners to bring forward suited to something as large scale and complex as proposals. Crossrail 2 and, particularly, the extent of the land use change contemplated here - the power is better suited Crossrail 2 would still need its own consenting route but to a single site consent and an SDO would also appear it could be progressed in parallel with JLPs, backed by to be undemocratic, cutting across the checks and the support in a government statement and supported balances of other consenting regimes. in parallel by an emerging new London Plan. Use of the New Towns Act Government could create the policy framework itself Ministerial Statements or White Papers are Government The New Towns Acts (1946 and subsequently 2015) policy and there is no reason in principle why a fairly gave Government power to designate areas of land detailed one could not be prepared in this case, for new town development under the direction of following consultation and following the preparation a Development Corporation. The Acts allow the of Strategic Environmental Assessment. A model could establishment of a Corporation with the following key be the Air Transport White Paper (ATWP) 200363, which powers: contained detailed policies for many of the country’s airports, including layout plans, etc. The ATWP took • the power to compulsory purchase land if it could several years to prepare but a Crossrail 2 specific White not be bought by voluntary agreement; Paper could be significantly faster, particularly given • the power to buy land at values which reflect a the preparatory work already undertaken by TfL. The ‘no scheme world’ and, therefore, to capture the White Paper would then give authority for Crossrail 2 to betterment for the benefit of the wider community; be progressed and would establish the confidence that • the power to borrow money (with some local plans would need to respond positively to support limitations); land use change. • the power to prepare a masterplan which, after public inquiry and approval by the Minister, would This option has attractions because it would create be the statutory development plan; a firm foundation for both the Crossrail 2 and the • the power to grant or refuse planning permission; land use change consenting routes. However, this is a • the power to procure housing subsidised by relatively slow option as it defers the important steps of government grant and by other means and to act consenting – and it would still require local plans to be as a housing association in the management of prepared with greater local definition. housing; and • the power to do anything necessary for the Special Development Order development of the town, such as undertake the A more direct consenting route is theoretically possible, delivery of utilities or enter into partnership working particularly through a Special Development Order (SDO) with other agencies. made by Government. We believe SDO powers still exist but have not been used for more than 20 years. In principle, a SDO could simply grant permission for anything, although it would need to be consulted on, supported by Strategic Environment Assessment (SEA), Environmental Impact Assessment (EIA) etc.
63 Air Transport White Paper, Department for Transport, 2003 47 National Infrastructure Commission
In principle, this type of approach to comprehensively The upfront costs of infrastructure can also be a barrier securing an objective is an attractive option – combining to delivery of large sites, which has been the case at plan making, assembly and consenting powers, although Barking Riverside in London and Ebbsfleet Valley in Kent Crossrail 2 would still need to be consented separately Thameside. Both of these have required significant but in parallel, with both processes legitimised by a clear public sector contributions to provide key early initial statement of government policy. The apparent infrastructure and enable housebuilding to follow. imposition of a Development Corporation on the local Plan making by local authorities can also be slow area could be softened by engaging representatives of and difficult to co-ordinate if plans are the separate the local authorities within it. responsibility of individual authorities spanning administrative boundaries. Whichever policy and consenting route is taken the common first step involves a high level, early The importance of coordinating all of these policy, government policy statement or announcement consenting and delivery factors suggests that a clear, which does enough to give authority and impetus determined approach needs to be taken to establish to the next steps but which does not go so far as to an authority with the power to direct the necessary prejudge the outcome (because to do so would be outcomes. A Development Corporation based on the open to challenge given the lack of sufficient SEA and type of powers available to New Towns Corporations consultation undertaken at that stage). After that there would be an appropriate delivery vehicle but even then are choices but it is important that a policy framework government would need to assist significantly with a to support land use change is worked up in parallel proportionate early policy statement and by putting in with the consenting route for Crossrail 2 (which is place the governance arrangements for coordinated probably a Hybrid Bill but which could be a DCO). working between those promoting crossrail 2 through Neither can prejudge the other but both need to gain its consenting process and the Corporation, whose role sufficient confidence and impetus from the originating would be to plan and deliver land use change. Government policy statement that the legitimacy of their intended outcomes is established from the start.
In addition to the policy framework, there are other barriers to delivery, which suggest that a direct approach to implementation would be desirable. In London these barriers include the slow rate at which permissions are converted to delivery and the concentration of land in the hands of reluctant developers. 48 National Infrastructure Commission
4.4 Within this area there are several sites that are already Crossrail 2 Route Alternatives to coming forward and a number that are designated for growth industries (including a Sustainable Industries Maximise Housing Delivery Park) so not all of this could be delivered by Crossrail 2, but it remains a very substantial opportunity. A high-level assessment of development potential along a number of possible route alignments for Crossrail 2 Beyond London in South Essex, opportunities are more in east London has been undertaken and although this limited. The area around the M25 is likely to remain work has not yet been finalised, it has identified some a preferred location for employment and distribution areas where there is significant development potential. and the existing urban areas have relatively limited re- development potential. There could be opportunities An Eastern Branch starting from Hackney Central would for Green Belt release and in the longer term for re- be able to serve either Stratford or West Ham and development of parts of Tilbury Docks. possibly Barking Town Centre, before potentially joining the C2C corridor to Tilbury or crossing the Thames into There are also substantial development opportunities Thamesmead. south of the river in Greenwich and Bexley.
Given the high existing levels of accessibility at Stratford Thamesmead New Town is to the north of the Abbey (including Crossrail 1), and the relatively advanced stage Wood station on Crossrail 1. It is currently relatively of implementation of the masterplans for the area, isolated (served only by buses) and has a large number Crossrail 2 is unlikely to have a significant impact on of potential development sites. We understand that one development potential. of the landowners has identified capacity for 10,000 homes, but the total could be closer to 30,000 homes. There is more scope around West Ham where there Extending the DLR from Gallions Reach and sharing are several protected industrial sites that could deliver the new road crossing would be an alternative way of up to 10,000 homes above the current London Plan improving the accessibility of Thamesmead. projections. However, given that the station is already served by three London Underground lines, the Further east there are major opportunities around Docklands Light Railway and national rail services, it is Belvedere, Erith and Slade Green stations. Together possible that this level of development could be served these could deliver up to 20,000 additional homes. without the addition of Crossrail 2. However, it is likely to be easier to serve the area by extending Crossrail 1. The same would be true of Barking Town Centre is almost as well-served and stations in Dartford and Gravesham in North Kent. does not have a large number of sites suitable for re- development that are not already identified in planning It is clear that there are far greater development policy. opportunities from an Eastern Branch than would be possible on the route to New Southgate. The AECOM/ The largest area of potential is the London Riverside GVA work64 suggests just under 10,000 homes could Opportunity Area. This contains over 1,300ha of be built on the New Southgate branch. The eastern industrial and vacant land. At a relatively modest branch is likely to have additional cost due to a greater density of 100 dwellings per hectare this could support length of tunnelling, but the benefits of the additional up to 100,000 homes. development may outweigh this and provide an uplifted BCR.
64 TfL, Crossrail 2 Business Case, 2015 49 National Infrastructure Commission
Case Study - Stockholm allowing more regional and intercity trains to operate.
The Stockholm Metro is a cross-city network 108 The Stockholm Region accounts for 45 percent of km long serving 100 stations. There are seven lines Sweden’s GDP and almost one third of the Swedish which all go through Stockholm City Centre in a very job market. Supporting economic growth in the region centralised metro system and it carries around 900,000 is a major driver of the planned metro expansion; per day in a city region of around 2.1 million. it is forecast to enable a 500,000 person increase in population in the area. It has been identified that Stockholm is embarking on a SEK 26 billion plan Stockholm has reached a point at which its transport (approximately £2bn) to expansion of its metro network is reaching capacity and therefore it has network. This investment will create approximately recognised the need to invest. 19km of additional track, nine new stations, and is expected to be completed by 2025. With the city’s The Swedish Transportation Authority has established population growing to 2.6 million, the new lines are a government mandate that allows local and regional forecast to serve an additional 500,000 residents authorities to apply for the state to co-sponsor by 2030. 78,000 new houses will be built in four investments in transport that can enable new property municipalities alongside the investment in the network. construction, and the Stockholm metro expansion is an example of this in practice. Funding will be provided There is also ongoing investment in a new, cross-city through a combination of government bodies, some rail line which crosses central Stockholm through of which will be passed on to Stockholm citizens as an underground tunnels. The new “City Line” is planned expansion of Stockholm’s congestion charge scheme. for completion in 2017. At a cost of around SEK 16 billion (approximately £1.4bn), it will provide two new tracks and new underground stations. The tunnel will significantly improve the traffic throughput to and from south of Stockholm. It proposes 24 trains per hour in each direction, commuter services up to 16 trains per hour and eight regional and long-distance trains. The tunnel will take all commuter trains, from the old line
SEK(Value)bn
SEK(Value)bn
SEK(Value)bn
SEK(Value)bn SEK(Value)bn 0.65
National Stockholm City of Nacka Järfälla City of Government County Stockholm Municipality Municipality Solna Council
Figure 1: Stockholm Metro including new “City Line” Figure 2: Sources of funding for Stockholm Metro expansion
National Infrastructure Commission March 2016 Report
5 Funding
5.1 Introduction
5.2 Funding
5.3 Options for funding
5.4 Financing
5.5 London and the regions
5.6 Funding and finance conclusions 52 National Infrastructure Commission
5.1 5.2 Introduction Funding
A variety of funding mechanisms are currently in place For Crossrail 2, a 'funding challenge' was set for at least for Crossrail 1 and many of these have been highlighted 50 percent of the total funding requirement of the as being potentially suitable to continue for Crossrail project to come from non central Government sources 2. In addition to these funding streams, this section and therefore be raised from other means. It is these explores further funding opportunities including user other types of funding that will form the basis of this charging, land value capture and taxation to fund section. future infrastructure programmes and projects, and how these could work to support large scale transport The Crossrail 2 Funding and Financing Study66 notes infrastructure in London. A review of the approaches the importance of considering the profiling of funding used within other cities has also been explored to when developing the case for the project. This builds on understand how the recent “City Deals”65 approach may the National Audit Office report in to Crossrail 1, which be applicable to London. notes that the up-front funding provided from Central Government was a core requirement in securing the other funding sources used in the project67.
For this reason and because of the positive externalities attached to infrastructure projects, it is expected that central funding will continue to form part of the overall funding packages in the future. This is consistent with historical funding mechanisms in London and across the UK, as agreed through City Deals, Local Growth Funds and devolution arrangements. The key consideration for future infrastructure projects is the amount of funding and financing that should be raised from other or local sources.
65 City deals have recently been the primary mechanisms for the specific infratsructure funding outside of London 66 TfL, Crossrail 2 Business Case, 2015 67 Crossrail, National Audit Office, 2014 53 National Infrastructure Commission
Other funding streams Before assessing the funding options in more detail, it is useful to recognise the potential quantum each In the context of the challenge for at least 50 percent funding method could provide for Crossrail 2. It is worth of Crossrail 2 to be funded by non central Government noting that at this stage, this package of funding has sources, it is important to consider the other potential not been agreed and several elements of the proposed funding mechanisms that could be used to fund large streams will require further policy and legal changes to infrastructure projects such as Crossrail 2. In order to implement. In particular (as detailed in Table 5.1): consider their appropriateness, the following criteria have been considered: • earmarking Business Rate Supplement for Crossrail 2 after its use on Crossrail 1 (due to end in 2031); • their ease of implementation and time taken to • introducing a new Business Rate Supplement (BRS), implement; which would require the balloting of businesses in • need for introduction or change to statute; London; • volatility of income stream; and • seeking agreement with the GLA and local • comparability to other projects where this type of authorities in London to extend the Olympic levy; revenue has been sought (if applicable). and • securing agreement with Government to borrow against Mayoral CIL.
Funding Source Funding & financing Notes Central Financial Case Notes study (Nov 14) (June 15)
Excludes national rail Excludes national rail Net operating surplus 20.0% abstraction. Fares at RPI 1% 11.6% abstraction. Fares at RPI 1% to ‘21 then RPI +0.5% to ‘21 then RPI +0.5%
Assumes MCIL ‘Enhanced Assumes MCIL ‘Enhanced and doubled’ rate of 11.6% and doubled’ based on 16.9% Mayoral CIL development increases in extrapolation of trend line with FALP
Higher rate of RPI applied, borrowing from 2033 15.2% 20.3% -10% risk adjustment no Business rate supplement to 2065 longer applied
Council tax precept from 1.5% £8 per band D property 1.4% 2017/18 Reflects increase in land requirement, but the 1.9% 6.3% Over-station development assumed recovery rate has not changed
Total % funded 50.2% 56.5%
Total % after national rail 42.6% 43.6% extraction
Table 5.1: Potential funding steams for Crossrail 2 Source: TfL, Crossrail 2 Business Case, 2015 54 National Infrastructure Commission
Case Study - Hong Kong Non-traditional funding sources comprise revenue from commercial businesses, such as advertising sales and The Hong Kong Mass Transit Rail Corporation (MTR) rental from duty-free shops and kiosks, and property bought the land where new stations were planned rental and management income. for land revenue capture. MTR owns or manages approximately 50 major properties across the city and The MTR case study shows that land value capture from owns 13 shopping centres built on top of its stations. residents and landowners can be a sustainable way to The USD$2 billion profit surplus generated is used for fund large transport investments, when the government capital expansion and network upgrades. MTR describes / transport authority owns the land. Transport for its traditional funding model for expansion as a ‘Rail London owns an estimated 200 million square feet of plus Property’ model, in which funding consists of land and has already announced plans to redevelop recurrent income from rail supplemented by the returns some properties into residential and commercial space. from property assets.
All tenants in the shopping centres pay rent (which went up by an average of 14 percent in 2014) to MTR, or have a profit-sharing agreement in place. The revenue split for MTR in 2014 excluding revenue from rail related subsidiaries outside of Hong Kong is 67 percent traditional funding and 33 percent non-traditional funding.
18000 16000 59% 14000 12000 10000 8000 HK $ million 6000 18% 15% 4000 8% 2000
Transport Station Property Other Operations businesses
Figure 1: MTR revenue (2014) Souce: MTR 2014 annual report 55 National Infrastructure Commission
5.3 Although revenue from national rail services would be Options for funding removed with Crossrail 2, the scheme would unlock opportunity for long distance rail which would generate User charges additional revenue to compensate.
Charging the users of new infrastructure is likely to be Ring-fencing an increase in user charging therefore a necessary component of any funding proposition. provides an easily implemented and stable income There is a key distinction to be drawn between direct stream for future project funding. In the Crossrail 2 users and indirect users. While the population arguably Funding and Financing Study this has been calculated benefits from infrastructure, this benefit is paid for, as the net impact, taking into account the revenues or from, general taxation via a central grant. User taken away from franchised national rail services charging looks at imposing a charge on individuals for and TfL services in to Crossrail 2. The mechanism for the direct use of that infrastructure, over and above the securing this revenue has not been specifically detailed contribution made through taxation. however it is anticipated that this would be an internal mechanism for TfL to maintain. Rail fares and the cost Increasing these direct user charges is a primary of transport are a policy decision, but could be used option for funding future projects. Approximately half for projects such as Crossrail 2. The forecast operating of national rail fares nationally are ‘regulated’, and surplus as outlined in the most recent Funding and therefore tied to the Retail Price Index (RPI). Under Financing revision for Crossrail 2 (PWC, 2015) is £6.75bn current Government policy no additional increase is over 35 years70. imposed (RPI + 0 percent). For unregulated national rail fares, train operating companies (TOCs) set the Fare Options fare in line with the wider transport market conditions. While annual fare rises are often contentious, they are Within the funding report for Crossrail 2 analysis was relatively simple to implement and economic evidence undertaken of a London wide above inflation fare rises. shows passenger numbers are relatively inelastic to This analysis highlighted that this option could raise changes in price68. substantial additional revenues for TfL. The baseline assumed TfL‘s business plan, of fares increasing annually Outside of the national rail network, user charging for at RPI + 1 percent until March 2021. light rail and metropolitan transport is the primary funding method used to supplement central grants. It was estimated that an additional 1 percent of annual Transport for Greater Manchester (TFGM) generated fares increase above the current fare growth repeated £11m in revenue surplus (after current financing costs) for 4 years from 2030 would raise 8.0 percent of the in 2014/15 which could enable supported borrowing project funding for Crossrail 2. for the next phases of the capital plan in Manchester69. Similarly Crossrail 2’s proposed funding package The use of fare increases is consistent with making the forecasts that the operating surplus generated largely users that benefit from the investment (even if using through user charging can support approximately the wider network rather than specific line) have a 11.6 percent of capital the funding required for the direct link into the repayment of the upfront costs of project over a 34 year period. This level of surplus is such infrastructure. As a potential variant to London calculated on the basis of assumptions on passenger wide fare increases, an option would be to increase flows moving from current services to Crossrail 2 the pricing of peak fares. Capacity issues during peak (including from national rail services), as well as periods would allow this argument to be justified, consideration of increased passenger flows from especially compared to a blanket fare rise across population growth and other external factors. London. Further economic and financial analysis would be required to assess the value of this option.
68 City University London, The demand for long distance travel in Great Britain: some new evidence, January 2005 69 Transport for Greater Manchester, Statement of Accounts for the Year Ended 31 March 2015 70 TfL, Crossrail 2 Business Case, 2015 56 National Infrastructure Commission
User Pays Revenue Broader indirect user charging for the road system sits with taxation on vehicles and fuel, with Vehicle Excise The user pays mechanism for specific assets can be Duty (VED) and fuel duty being the key mechanisms implemented in London including road projects. The by which car users are charged. Taking a precept DfT‘s National Policy Statement for National Networks from road taxes has been used as an infrastructure outlines introducing road pricing to manage demand on funding mechanism in other parts of the world. In the the Strategic Road Network falls outside Government UK at present these taxes are not directly used for policy, but charging can be introduced as ‘a means maintenance and investment in the road network, but of funding new road capacity on the Strategic Road instead are directed to the exchequer. Ring-fencing a Network’71. portion of VED, based on where the vehicle is insured or registered, could form the basis for an element of The Silvertown Tunnel is a proposed crossing of the infrastructure funding. This funding stream has been River Thames. On 3rd February 2016 a submission for proposed by both the Institute of Civil Engineers, and in development consent was submitted to the Secretary the London Finance Commission’s ‘Raising the Capital of State for Transport following a public consultation. Report’. Similar to congestion charging or road tolling, In addition a preliminary business case has been it would be feasible to use these funds towards public prepared72. Charging for use of the asset is justified for transport projects such as Crossrail 2, rather than road two reasons: network improvements. However, this would be a departure from established policy. • managing demand on the asset; and • contributing towards the cost of the asset. A number of other user charging mechanisms, including levies or taxes on visitors to international cities such as In preparing the preliminary case a number of other London, could be investigated further. For example: options, including Mayoral Community Infrastructure Levy (CIL) and Government grant were considered, • in Nottingham, a workplace car parking levy has however user charging is the preferred option because been issued by the City Council with proceeds it is also able to manage demand on the asset, and funding the tram extension in the city; contribute towards broader policy goals of encouraging • hotel taxes are common in the USA and major public transport use and improving air quality. European cities. Particularly in Paris and Barcelona these charges are used to maintain The present cost estimates are £920m for construction local infrastructure assets, rather than fund their and £3.5m annually for operations operational, which construction. These are mentioned in the London also includes routine maintenance. At present there are 2050 Infrastructure Plan and Westminster and no published forecasts for anticipated income, although Camden local authorities have recently explored a variable charge is being considered. these funding streams in detail; and • local Sales Taxes are widely used at State level in the United States to fund road infrastructure improvements. In Lake County, Florida, a sales tax set 1 percent higher than state tax is ring- fenced for use on local infrastructure, mainly road improvements73. This is less likely to be applicable in the UK due to the current tax legislation.
71 Department for Transport National Policy Statement for National Networks, December 2014 72 Transport for London, Silvertown Tunnel Supporting Technical Documentation, October 2015 73 Lake Country Florida Infrastructure Sales Tax Renewal, About the Sales Tax, 2015 57 National Infrastructure Commission
Land value capture Tax Increment Financing
Public bodies and local transport authorities have the National Non Domestic Rates (NNDR) or business rates opportunity to use the land it has access to through are charged to capture the value of the immediate its partners to not only deliver value with regards to infrastructure and services that organisations located its direct objectives, linked to its vision for transport, in that area benefit from. Tax Increment Financing (TIF) but wider indirect benefits across business, housing, has been developed as a model to subsidise upfront and other connected areas. This can be done through development which would not occur but for the capturing the increasing value of land adjacent to the intervention. This investment is then recovered through core development of the infrastructure. the incremental increase in business rates from future development of that land. The unearned value (increases in land value which otherwise profit private landowners cost-free) may The risks associated with TIF are related to failure to be ‘captured’ directly by converting them into public complete the project and the variability of business revenue. Thus, value capture measures the positive rates over time. In the former, if the development does outcomes of public investments, allowing public bodies not proceed as forecast the borrower may be left with a to tax the direct beneficiaries of their investments. liability they are unable to service. Equally, the re-setting of business rates is due to take place every Urban planners and finance officials are often interested five years, but it is unclear how this re-setting will be in value capture mechanisms because: applied and thus it is difficult to forecast changes in rates. The latest business rates revaluation took place • they offer a targeted method to fund infrastructure in 2008 and was implemented in 2010, with the next benefitting specific land; and due for 2017. As such forecasting the recovery of the • such investments can, in some cases generate investment is difficult to anticipate. private investment in the area, which will more widely benefit the area (e.g., by providing Typically TIF is difficult to implement, though the employment opportunities, shopping and other main barriers as identified by the London Finance amenities, and a more robust and diverse tax base). Commission are the setting of accurate tax baselines and clearing any borrowing against TIF within the The value of any given land can be determined by prudential rules74. The Commission argues that fiscal its proximity to various amenities (both public and devolution to London would make this a quicker process private). Therefore when a new train station or service to approve, with fewer restrictions on use. is provided, such as Crossrail 2, nearby land becomes more valuable.
Capturing that land value capture increase can be undertaken in four ways which we explore in turn:
• tax increment financing; • special assessment zones (Enterprise Zones, business Improvement Districts, Stations); • developer agreements; and • direct involvement.
74 Travers, Tony, Raising the capital: the report of the London Finance Commission, London Finance Commission 2013 58 National Infrastructure Commission
TIF has been widely used in the USA since 1970, in part Special Assessment Zones due to the federal system operated in that country. In comparison, the UK market for TIF is comparably An enterprise zone is a geographic area in which immature. In spite of this TIF is in place to fund the the market value of real estate is enhanced due to Northern Line Extension in London. TIF deals have the influence of a public improvement and in which also been implemented in Scotland where the Scottish business taxes are ring fenced for the promoter Government has utilised its fiscal controls to implement to recover the costs of the public improvement. TIF more widely than in England and Wales75. Infrastructure incentives and reduced regulation can Examples of its use in Scotland are: also be used, if the statutory power exists, to attract investment and private sector interest into an area to • £80m City Centre regeneration project – Glasgow; increase land value and create jobs. • £67m M9 motorway and flood defence funding – Falkirk; Risks attached to this zonal approval relate to the • £79m town centre regeneration – North question of true benefit. There is still uncertainty over Lanarkshire; and whether this approach creates truly ‘new’ economic • £18.9m renewable energy projects – Argyll and activity, or simply displaced economic benefit Bute76. congregating around new investment. In addition, the resetting of business rates as described above could Potential benefits related to TIF include the opportunity have a negative impact in such a zone. to regenerate the wider area around a project and the potential for this indirect development to then proceed The TIF deal for the Northern Line Extension required as investors’ appetite increases in that area. Similarly TIF the creation of an Enterprise Zone (EZ) around Nine introduces the prospect that land that otherwise would Elms in south London. The creation of the EZ follows the remain vacant receives the catalyst required to kick-start proposed new stations in Battersea and Wandsworth development. For Crossrail 2, some of this uplift may Road and the EZ is required by statute to allow the fall outside of the proposed TIF zones (if inside the zone business rates retention agreed in the TIF deal. The Nine an increase in business rates would be used to fund the Elms EZ, if retained after completion of the extension, project). In this instance the economic benefits brought would also have the power to grant discounts and by the project would create a wider tax uplift for the tax breaks, as well as continuing to retain NNDR. Any Exchequer due to business creation and growth, outside extension of the agreement beyond the current life of that modelled in the case for crossrail 2. It is these of the NLE scope would be subject to agreement with broader benefits that mean the higher cost ‘Regional’ Government77. route is preferred over the lower cost ‘Metro’ route. A similar approach is being considered for Crossrail 2 to enable the incremental business rates income to be collected in Kingston, Wimbledon, Victoria and Tottenham Court Road, though at present there has been no specific discussion regarding how powers of reduced regulation and other EZ benefits will be employed in these areas.
75 The Scottish Government, Tax Incremental Financing, February 2013 76 The Scottish Government, £1.5bn infrastructure investment, April 2014 77 Ward, Matthew, Enterprise Zones, House of Commons Library, January 2016 59 National Infrastructure Commission
Developer agreement There is a balance to be struck on the level of CIL charged. Too low and it will not raise sufficient Local authorities have the ability to levy charges on revenue. Too high and CIL may reduce potential new developers in two ways. A Section 106 agreement development or further increase the price of housing otherwise known as a “planning obligation” is used within London. to provide contributions to offset negative impacts caused by construction and development. Examples of The current rates of Mayoral CIL vary across different contributions range from the provision of affordable London boroughs according to a zonal principal and homes and new open space to funding of school places applies to both new residential and non-residential or employment training schemes. The developer will development where the total floor area exceeds either implement these or make payments to the 100sqm. The Funding and Finance Report for Crossrail council for them to be carried out. All Section 106 2 suggests that Mayoral CIL and Section 106 could be agreements must be relevant to the development they merged. This appears a sensible recommendation based relate to, with the main purpose being to protect wider on the evidence from Crossrail 1, where the forecast land values and contribute to the wider infrastructure CIL revenues were stronger than the Section 106 need. contributions. Any changes to the Mayoral rates would require an Examination in Public by an independent The second option is the CIL which is a charge raised per examiner, meaning there could be a time delay for metre squared by local authorities in England on new receipt of this income stream to the project. development as a condition of planning consent. The CIL is used to fund local infrastructure to support the Criticism of Mayoral CIL is that it fails to effectively new developments. In London the Mayor has powers capture the ‘live’ value of new developments. This is (under the Planning Act 2008) to introduce a London a similar issue to revenue from Stamp Duty Land Tax wide ‘Mayoral CIL’ to deliver local and sub-regional (SDLT), where value is only captured at the point of sale large scale transport infrastructure. This power is being for HM Treasury. There is currently no mechanism to used for Crossrail 1 and it would seem appropriate that capture the increase in value of properties as a result a similar mechanism could apply to Crossrail 2 which of local infrastructure development where the property based on the most recent projections is expected to is not a new development (CIL/Section 106) or where be the second highest contributor of funding (16.9 the property is not sold (SDLT). One option could be a percent) after the Business Rate Supplement levy on the increase in rental values, whereby the uplift (20.3 percent). year-on-year in captured. This may be a further option to be assessed for future infrastructure investments, The mechanism is currently in place for Crossrail 1 though would most likely require wholesale change and is expected to continue, with the Mayor choosing of housing and rental legislation to implement. An where to direct the funds. As with the Business Rates additional risk is that the level of developer contribution Supplement (BRS) this is easy to collect through local required may affect viability and become prohibitive to authorities. projects commencing if there is an economic slowdown. A report commissioned by Royal Institution of Chartered The major risk with the CIL is that the revenue is directly Surveyors’ Building Cost Information Service has linked to new developments within London which can introduced this as a problem outside of London78. change substantially with external economic factors. However, this is mitigated by the forecast growth of London’s population and the resilience of London-based developments to economic shocks (as seen from 2007 to present).
78 BCIS, Housing Development: the economics of small sites – the effect of project size on the cost of housing construction, August 2015 60 National Infrastructure Commission
Government Led Development This approach is more innovative and would require A further option for funding development is for fundamental policy changes to enable such land value Government to take direct involvement in the capture capture. It has been used however, as an example by, of land value. Government led development could the Olympic Park Legacy Corporation at the Queen occur in two ways, firstly through the development of Elizabeth Park at Stratford which was a DC, a benefit of land that would have been taken over to facilitate the which was to allow the public sector to raise funding delivery of the infrastructure railway itself. For example and have more control over any housing constructed sites to provide access, create work sites and provide (i.e. affordable housing, specialist housing). storage facilities. The scale of housing release contemplated specifically Some of this land may ultimately form part of the in relation to Crossrail 2 suggests that there could be infrastructure but excess land, for instance land used as substantial benefit in extending this model to direct worksites during the construction phase has historically control of the released land and to a development role been subsequently sold and can provide additional in its delivery. funds for the project. This has been used for Crossrail 1, Bank Station Capacity Upgrade and is proposed for HS2. Early land acquisition or a programme of compulsory The consultation work is on-going for HS2, however acquisition can be effective in both generating sufficient to date approximately £272.4m of property has been control to facilitate delivery of the land use change purchased by the programme79. The level of additional as well as the infrastructure, but it can also enable land value capture will only be demonstrated post- land value uplift to be captured by the promoter. One completion of HS2. implication of this approach is with regard to cashflow, whereby an initial capital expense for the purchase Secondly, fundamental policy changes and a different is not repaid until nearly the end of the project. The promoter vehicle could enable the Government to, in more nuanced approached as outlined above (such as principle, acquire additional land outside of the strict developer agreement) could allow a more front ended boundary required for the construction of the railway stream of revenue in to the project. itself to take advantage of the land value increases that would occur as a result of the increased public transport The risks from this mechanism are that the ultimate accessibility and a direct result of constructing Crossrail sales value is dependent on the economic cycle and 2. This requires policy changes that would be separate London has a history of volatile prices, although over and in addition to the Parliamentary Powers that would the long term the trend is upwards. The linkage to the enable the Crossrail 2 scheme (railway only) to be economic cycle and definite project timescales make consented, a Hybrid Bill or Development Consent Order this source of funding difficult to predict and therefore under the Planning Act 2007. For example, the creation finance against. of a Development Corporation as discussed in section 4. DCs can be given powers to acquire land, secure funding, act as their own Housing Association, reclassify land for residential and commercial purposes and allow levels of densification which can help maximise the value of developments, but also powers to prepare masterplans with development plan status and to consent or refuse planning applications.
79 Butcher, Louise, High Speed 2 (HS2) Phase 1, House of Commons Library, December 2015 61 National Infrastructure Commission
Land Value Capture options Local Taxation and Grants
As detailed above, the London Mayor could establish The other area for raising additional funding relates to a Mayor Development Corporation (MDC), which was other taxation mechanisms and grants. permitted under the Localism Act 2011. Business Rate Supplement In addition to this ‘core’ option for Land Value Capture, The Business Rate Supplement (BRS) has been is the ability to utilise Stamp Duty Land Tax. SDLT is a successfully used on Crossrail 1 and under the Business tax levied on property or land transactions in England Rate Supplement Act 2009, which allowed London and Wales, and has been reformed over the last 10 boroughs to collect a maximum of 2 pence in the pound years to account for the house price inflation observed of rateable value to the rates multiplier. In London the over the same period. SDLT is currently payable direct levy applied to commercial properties with a rateable to the Treasury via HMRC. The Crossrail 2 Funding and value of £55,000 or more, which equated to 20 percent Financing Study introduced the notion that an uplift of non-domestic properties in London. in SDLT caused by the increased value generated by Crossrail 2 could theoretically be included in a broader This funding stream would appear to be replicable for land value capture mechanism. future projects subject to the overall limit. It is easy to collect, with high collection rates and provides a This report also identified the possibility for devolution steady income as unoccupied properties generally of fiscal authority over SDLT to the GLA, in order for remain liable for Business Rates. Further changes to the it to be considered as a funding stream for projects maximum value of rateable value (currently £55,000), in London, for example. In Scotland, SDLT has been could be used to vary revenues from this source. The replaced by Land and Buildings Transaction Tax (LBTT). risks with this income stream is the maximum 2 pence A recent London First report, along with various other has been earmarked for Crossrail 1, and without further studies discussed below, note that devolution of legislation BRS for Crossrail 2 could not be used until property taxation should be a core future component of the current BRS for Crossrail 1 has ended (forecast to be infrastructure funding. The broad argument is that this 2031). The supplement is continuous unless cancelled. type of fiscal devolution would be offset by a reduction in central Government funding, thereby not harming Any new BRS scheme for Crossrail 2 would currently the level of funding for the remainder of the UK but need to ballot business ratepayers in London to approve allowing London to have more control over its own an additional supplement to fund Crossrail 2. However, revenue. the proposed changes in legislation over business rates are likely to mean local areas have greater immediate control over how business rates are collected, retained and spent. As announced at the Conservative Party Conference in 2015, Local Authorities will be able to retain business rates collected, rather than the current model of collection and central redistribution. In the proposed new system of business rate collection and retention, no additional statue may be required for local authorities to a) raise a supplement and b) redistribute the proceeds of a supplement to a sub-national transport body or towards the NIC for redistribution. The question for London though is whether the business community would accept a further levy on top of the current 2 percent specifically for infrastructure. 62 National Infrastructure Commission
Council Tax Levy Other Sources A levy on council tax is a core method of funding There are a number of other sources of funding outlined Combined Authorities and Transport Authorities across in the Funding and Finance Report on Crossrail 2 which England. TfL currently receives approximately £6m per could fund smaller proportions of the project including: annum from council tax precept (in addition to £15.6m (2014/15) in charges to London Boroughs), whereas • Station Zone Value Capture – to capture increases Transport for Greater Manchester (TfGM) received in land around stations such as used for the £195m in council tax levy in 2015/16. Introducing a Northern Line Extension which focussed on the levy on council tax, similar to BRS, has the potential to redevelopment of Battersea Power Station and provide a significant revenue stream for future project covers the Vauxhall, Nine Elms and Battersea funding. In 2014/15 approximately £3.4bn of council Enterprise zone. Both the incremental Business Rate tax was collected by London boroughs meaning even a Income and Borough Community Infrastructure small percentage increase could contribute significant Levy have been assessed. Although the report for proportions to the funding profile of infrastructure Crossrail 2 states this is not likely to be significant promoter. because of the limited link to major Central London stations that would be solely captured by this Alternatively, a precept could be charged on Council Tax project; and across London specifically to fund large projects. This • Negotiated Contribution – whereby contributions concept was implemented as part of the London 2012 are actively sought from private corporations and Olympic funding package, whereby a precept over 10 businesses with a vested interest along the corridor. years raised approximately £625m. Such a specialised The clearest examples on crossrail 1 are Canary increase in council tax has been allowed for social Wharf, which contributed £150 million and Berkeley care and may provide London, or other regional areas, Homes. Other examples included the City of London opportunity for a similar ring-fenced increase in Council and Heathrow Airport who together contributed Tax to be directed at supporting specific infrastructure approximately £500 million. projects. The impact of devolution? As with fare increases, this is consistent with the principle of those who are the most likely beneficiaries The Crossrail 2 report also states that further of the development contributing to the cost of the devolution or hypothecation to the GLA of future infrastructure. It is noted that some core users of growth in property tax income across London could the new Crossrail infrastructure will pay their council be problematic, primarily due to the fact that income tax outside the Greater London boundary and would would be based on growth, starting at zero and rising therefore not contribute through the precept. One key up over time. In order for this to be a funding stream benefit of the precept is that it should create a steady able to contribute to the revenue demands of Crossrail dependable flow of funding each year, though Council 2, devolution of such taxes would have to occur well Tax collection is historically less dependable than in advance of the project commencement. Detailed business rates collection. analysis of this devolution would be required to assess whether such fiscal control could generate future funding revenue to Crossrail. 63 National Infrastructure Commission
Funding Summary 5.4 Financing Overall the funding sources identified in the Crossrail 2 Funding and Finance Report appear reasonable and Generally with large infrastructure projects, the in most cases have been used on other infrastructure financing requirement is driven by the timing difference projects. With the target of 50 percent funding from between costs being incurred, and the revenues being non-central government sources, a range of these received. For the purposes of this report, therefore, options are likely to be required to fund Crossrail 2. financing can considered to be how the costs of a project are met as they are incurred. One of the challenges, will be dovetailing ‘new’ funding streams with those already in place for Crossrail 1, As noted in the previous sections, the funding revenues however, in principle sources such as BRS will have may be: finished funding Crossrail 1 by the time the funding is required for Crossrail 2. • annual and recurring, after the infrastructure is built and operational (e.g. user charges); One of the key challenges, however, will be balancing • annual and recurring, prior to as well as after ‘new’ funding streams with those already in place for the infrastructure is built (e.g. BRS or Council Tax Crossrail 1. For example, BRS has already been allocated precept); to Crossrail 1 until 2031 which could provide challenges • a one-off payment (e.g. land sales); or to Crossrail 2. • a series of one-off payments (e.g. receipts from a CIL). In addition, a number of significant funding sources require policy changes. The financing requirement to be funded from these streams will be driven by three main variables: While a number of the options outlined above are open to any area in the UK (e.g. rail fare increases, • size of the financing requirement, reflecting the tourist levy), London is at a significant advantage capital costs of the scheme; when it comes to decision-making required at a local • the cost of the finance, reflecting the interest rate authority level. The pre-existing TfL, GLA structure and or cost of capital required by the source of finance, relationship enables a simpler governance process relative to other options; and when building a suite of funding options which will • the length of time over which the finance is repaid. assist for the funding of large infrastructure projects. A large proportion of this financing is highly likely to London also maintains a more stable economic be from the sources offering the lowest interest rates, base than other areas of the UK. Seeking developer effectively public sector borrowing based on public contributions is less volatile in London because of the sector credit. In general these sources are accessed increasing demand for commercial and residential from central government departments or local property80. Contributions from these developments authorities although the European Investment Bank may can be relied upon over the medium to long term in also have a role. London, whereas the economic base in other UK areas may not be so stable. Private sector finance may be pursued as an option for certain projects or elements of projects. For example there is an established market for rolling stock leases in the UK. The main advantage of private finance is that, subject to structuring the transactions in a certain way to transfer certain risks related to construction, availability and demand, such finance is treated as off balance sheet for the public sector, which reduces the pressure on the public finances.
80 JLL, Driving Forward – Will the momentum continue?, Property Predictions 2015 64 National Infrastructure Commission
Ultimately the decision on the off balance sheet This type of financing would be available for London treatment lies in applying the Eurostat rules under the projects, such as Crossrail 2, though it will ultimately be European System of Accounts 2010 (ESA10), which secured against Government assets. TfL has significant judges whether borrowing is within or outside of the experience of issuing bonds to finance capital public sector boundary for national accounts purposes, expenditure and refinance existing debt packages. TfL ‘s based on the risk transfer of the specific project. current bond issue stands at £3bn. For example, toll roads lend themselves readily to alternative financing solutions as the existence of user Alongside the announcement of the NIC was the charges leads them to be classified as ‘off balance sheet’ creation of British Wealth Funds, an attempt to harness for the public sector, and hence not count towards UK the financial assets of local government pension fund Government borrowing constraints. pots to finance infrastructure projects in the UK. For London, two potential funds exist; London Collective Private finance generally comes at a higher cost, due Investment Vehicle (London CIV) and the London to the private sector needing a return on their equity Pension Fund Authority/Lancashire combined pool to reflect the additional risks taken on. This generally which pioneered the model, though in reality any accounts for a small proportion (1 percent to project could feasibly access finance from any British 10 percent) of the overall funding. We would also Wealth Fund. note that for some of the larger infrastructure projects envisaged by the NIC, a purely private sector solution An area where public funding can be used to assist may be beyond the capacity and scale of the market in leveraging private sector investments is the UK to deliver because of the levels of risk involved. Guarantees Scheme. Initially a response to the Studies have shown that the cost of transferring risk aftermath of the credit crunch where the long-term is prohibitive particularly construction risks of large funding required by infrastructure projects effectively complicated projects which have previously included dried up, the UK Guarantees Scheme was established to Edinburgh Trams and Eurotunnel. Each project would provide the bridge between public and private finance. require to be assessed separately and as noted above Central government will support projects through a elements of any specific project may lend itself to a financial guarantee to pay the private sector financier specific financing route81. the capital and interest due on its loans should the project itself not have the cashflows to cover them. Further streams of finance may be sought from more The scheme has currently been extended to December innovative and new sources. The creation of bonds from 2016. government bodies is an options for raising relatively cheap levels of finance from investors, but these are TfL has experience of UK Guarantees through usually dependant on a government guarantee, which the Northern Line Extension84. For the Northern would be politically sensitive and may be counted as Line Extension, the Government has arranged an on the public sector balance sheet. Municipal bonds unconditional and irrevocable financial guarantee to have also been put forward by local authorities in the pay the scheduled principle and interest on borrowing UK, though the development of a formal agency has of £750m. The payment to the Government for the been slow. The UK Municipal Bond Agency established guarantee has been set at the market rate. The key its formal framework in January 2016. Warrington benefit is the use of Government credit rating against Borough Council successfully issued a £50m CPI linked the project to secure a lower cost of finance85. bond in 2015, at a coupon of 0.846 percent and under a Moody’s rating of Aa2. The coupon is limited to 3 percent and the bond formed part of a broader financing package from PWLB and reserves82.
81 Crawford, Joe, Infrastructure & Risk: Identification, Management & Transfer of Risk by HM Treasury, Cambridge Judge Business School, February 2014 82 Warrington Council, Warrington Borough Council enters bond market, August 2015 83 Transport for London, Borrowing Programme, January 2014 84 HM Treasury, Transparency data UK Guarantees scheme: table of prequalified projects, March 2015 85 Allen & Overy, The UK Guarantees Scheme for Infrastructure Projects, 2013 65 National Infrastructure Commission
It may be that the use of a UK Guarantees style “wrap” Financing Summary of debt could be used to make the cost of financing as efficient as possible. Recent market soundings have Large project financing is dependent on a number of highlighted clearly that the strength of the guarantee core issues such as the quantum of financing needed provided to the financier will be critical in driving private and the level of risk involved in the specific projects. sector appetite for funding infrastructure and the cost Typically these are decided on a project-by-project of such funding. basis. However a key strategic issue relates to the treatment of financing on the government balance The Funding and Finance Report states there is no sheet and the guarantees expected by the private apparent reason why Crossrail 2 would be any more sector financiers. suitable than Crossrail 1 for private financing, where a minority of the project would be privately financed. Appendix B provides further analysis of the assumptions It is also noted that Crossrail 2 would not meet any of used within the Crossrail 2 Funding and Financing Study. the investment requirements of the ‘wall of money’ from sovereign wealth funds, infrastructure funds and 5.5 pension funds, without government guarantees, due to London and the regions the size and risk profile of the project. The above funding and financing options have been The three areas identified for private finance relate to: considered with applicability to London and Crossrail 2. When assessing the ‘fit’ with the rest of the UK • selling the revenue stream that is forecast from it becomes clear that London holds a number of Crossrail 2 either upfront or over the life of a advantages which allows easier implementation of such concession period as is followed on rail franchises. funding mechanisms. It should be noted that currently TfL retains the revenue risk on their rail franchises; Firstly, political and administrative structures already • rolling stock finance which has a history in the UK exist within London to support a number of the core and was originally being used for Crossrail 1 but funding elements that have been discussed above. was stopped due to concerns over the required Devolution of fiscal powers, levying of certain tax timeframe; and elements, or the widespread implementation of fare • using a Regulated Asset Base (RAB) model as used increases, CILs or other mechanisms have, to some for the Thames Tideway Tunnel with bespoke extent, already been delivered via the Mayor’s office, features. For this to apply to Crossrail 2 would GLA or TfL. Economically, there is greater security require an independent regulator for investment around London-based proposals. The sustained plans and pricing. The RAB model is normally economic growth of London when compared to the used to deal with maintenance and renewal of an rest of the UK is well documented, as is the value of establish network rather than a whole asset. The property, land and other assets situated within the Shaw Report into Network Rail may provide further London boroughs. When assessing the security of future guidance on how this will be applied to the wider revenue streams against a borrowing requirement, Network Rail assets. there is likely to be a higher level of certainty attached to London based models than other areas of the country. 66 National Infrastructure Commission
City Deal funding packages were set up in part as a 5.6 response to the imbalance in funding from Central Funding & Finance Conclusions Government to cities outside of London. While they have facilitated the development of some more innovative funding methods for infrastructure Ultimately funding and financing envelopes will be (primarily the earn-back/gain-share models), London formed on a project-by-project basis, and will be has already developed beyond the application of driven by the type and quantum of funding required these mechanisms. The evidence from Northern Line for the project. Crossrail 1 and 2 are prime examples Extension and Crossrail 2 is that of a decreasing central which demonstrate how other funding mechanisms Government presence, whereas City Deals represent have and can be used to reduce the requirement for an attempt to lock-in funding for longer periods in significant levels of central Government funding. The the ‘core cities’ and beyond. Ultimately the reflection current Crossrail 2 funding forecast demonstrates on city regions is that they would like to emulate the the importance of both the users pay and land value mechanisms London has already been able to develop. capture mechanisms to funding large infrastructure projects. The extent to which these mechanisms are This is evidenced by Manchester City Council’s acceptable for politicians and the public is a matter for submission to the London Finance Commission, which further investigation. The devolution of further fiscal argues that London has had a disproportionate level of powers, as identified in a number of other reports, capital funding from central Government in the past, would form a key part of these discussions in the and that any fiscal devolution subsequently offered to future. The extent to which future fiscal policy can London to offset these historic grants should also be impact infrastructure funding should be a key part of offered to Manchester and other UK cities86. the on-going work of the Commission.
It is worth noting that City Deals have been only one point of significant change for UK cities. Since their introduction, City Deals have been built on by devolution agreements and the development of Combined Authorities in city regions. Both of these have had an impact on the funding and financing of projects, though as yet there are no significantly innovative funding proposals for infrastructure in city regions that are not already being utilised in London.
Further details on the specific arrangements for a number of recent City Deals are provided in Appendix C.
In summary, while the funding options outlined in this report are theoretically possible to implement outside of London, and will certainly be considered as sub- national transport bodies are established, the speed and relative ease with which they could be applied will vary. London is undoubtedly at an advantage, and as demonstrated with Crossrail 1 and Crossrail 2, this advantage is producing innovative options for serious consideration by the rest of the UK, and the world.
86 Manchester City Council, Statement of Evidence to the London Finance Commission, 2011 National Infrastructure Commission March 2016 Report
A Glossary 68 National Infrastructure Commission
Term Definition
An impact arising from an intervention is additional if it would not have Additionality occurred in the absence of the intervention.
Agglomeration The benefits that firms obtain by locating near each other.
The benefit when lower transport costs bring firms closer together, resulting Agglomeration Economies in lower unit costs and higher productivity.
The process of defining objectives, examining options and weighing up the Appraisal costs, benefits, risks and uncertainties of those options before a decision is made.
Is an indicator, used in the formal discipline of cost-benefit analysis, that Benefit Cost Ratio (BCR) attempts to summarise the overall value for money of a project or proposal
The Business Rate Supplements Act 2009 makes provision for county councils, unitary district councils and the Greater London Authority to levy a Business Rate Supplement (BRS) supplement on the national non-domestic rate (or business rate). Authorities will be able to use the proceeds to fund additional investment aimed at promoting the economic development of local areas.
c2c operates services on the London, Tilbury and Southend Railway line from C2C London Fenchurch Street to the northern Thames Gateway area of southern Essex.
As defined by the GLA’s Central Activities Zone Supplementary Planning Central Activities Zone (CAZ) Guidance. It is broadly the West End, the City of London and Nine Elms corridor.
CIL Community Infrastructure Levy
In December 2011 the Government announced a new process of City Deals which has seen Government work with different cities to agree a series of City Deal tailored ‘City Deals’. These consist of new powers for cities and/or innovative projects to unlock growth in each area.
Combined authorities are a legal structure that may be set up by local authorities in England. They can be set up with or without a directly- Combined Authorities elected mayor. The relevant legislation is the Local Democracy, Economic Development and Construction Act 2009 and the Cities and Local Government Devolution Act 2016.
Compulsory purchase powers are provided to enable acquiring authorities to compulsorily purchase land to carry out a function which Parliament Compulsory Purchase Order (CPO) has decided is in the public interest. A Compulsory Purchase Order (CPO) is a vehicle for compulsorily purchasing land based on a specific Act of Parliament.
Analysis which quantifies in monetary terms as many of the costs of a Cost Benefit Analysis (CBA) proposal as feasible (financials), including items for which the market does not provide a satisfactory measure of economic value (non-financials).
High capacity rail service under construction, between Heathrow and Crossrail , Crossrail 1 Reading west of London, through central London to Shenfield and Woolwich Arsenal in the east.
Proposed high capacity rail service running from south west London through Crossrail 2 central London to north east London.
DfT Department for Transport 69 National Infrastructure Commission
Term Definition Development corporations are bodies set up in England and Wales by the Development Corporation UK government charged with the urban development of an area, outside the usual system of Town and Country Planning in the United Kingdom. A method used to convert future costs or benefits to present values using a Discounting discount rate.
The annual percentage rate at which the present value of a £, or other unit Discount rate of account, is assumed to fall away through time.
DLR Docklands Light Railway
The Localism Act, 2011, placed a legal duty on local planning authorities, county councils in England and public bodies to engage constructively, Duty to Co-operate actively and on an ongoing basis to maximise the effectiveness of Local and Marine Plan preparation in the context of strategic cross boundary matters.
See appraisal. This specifically takes into account the economic costs. Also Economic Appraisal used as a general term to cover cost benefit analysis (CBA).
Enterprise Zones are areas in which Government incentives such as tax Enterprise Zones concessions are offered to encourage business investment. The government has designated 24 areas across England as Enterprise Zones.
ETCS European Train Control Systems
A systematic framework for the development and the presentation of the Five Case Model business case over time (Strategic Outline Case, Outline Business Case and Full Business Case).
The third and final part of business case development, it should provide all the information needed to support a decision to award a contract and Fully Business Case (FBC) commit actual funding, and should provide a basis for the necessary project management, monitoring, evaluation and benefits realisation.
Governance for Railway Investment Projects - the way Network Rail manage GRIP transport projects
Gross domestic product (GDP) is the monetary value of all the finished goods Gross domestic product (GDP) and services produced within a country’s borders in a specific time period
Gross Value Added (GVA) is an indicator of wealth creation, measuring the Gross Value Added contribution to the economy of a specified investment in economic activity.
High Speed 2 (HS2) is the planned high-speed railway linking London, HS2 Birmingham, the East Midlands, Leeds, Sheffield and Manchester.
Local Development Orders (LDOs) are made by local planning authorities and give a grant of planning permission to specific types of development within Local Development Order (LDO) a defined area. They remove the need for developers to make a planning application to a local planning authority. Transport Infrastructure of national importance that is of sufficient scale and Large Scale Transport Infrastructure cost that requires a bespoke funding method to finance delivery. 70 National Infrastructure Commission
Term Definition
From March 2015 the majority of future funding for local transport will be in the Local Growth Fund. Strategic Economic Plan. Strategic Economic Plans Local Growth Fund of Local Enterprise Partnerships (LEPs) are used as the basis of negotiating a Local Growth Deal with Government which determines the level of funding LEPs receive from the Local Growth Fund.
The price at which a commodity can be bought or sold, determined by the Market Value interaction of buyers and sellers in a market.
The Mayoral Community Infrastructure Levy (CIL) applies to most new major Mayoral CIL developments in London granted planning permission on or after 1 April 2012. The Levy is currently being used to fund Crossrail 1.
An independent body that enables long term strategic decision making to National Infrastructure Commission (NIC) build effective and efficient infrastructure for the UK.
National Policy Statements (NPSs) are produced by Government on major national infrastructure matters. They give reasons for the policy set out in the statement, and must include an explanation of how the policy takes account of Government policy relating to the mitigation of, and adaptation National Policy Statement (NPS) to, climate change. They include the Government’s objectives for the development of nationally significant infrastructure and they include any policies or circumstances that Ministers consider should be taken into account in decisions on infrastructure development.
The discounted value of a stream of either future costs or benefits. The NPV Net present value is used to describe the difference between the present value of a stream of costs (NPC) and a stream of benefits.
Opportunity Areas are London’s major source of brownfield land which have Opportunity Area significant capacity for development – such as housing or commercial use - and existing or potentially improved public transport access.
The value of the most valuable alternative uses or the cost of something in Opportunity cost terms of an opportunity forgone.
The demonstrated systematic tendency for appraisers to be over-optimistic Optimism bias about key project parameters, including capital costs, works duration and benefits realisation.
The process of defining objectives, examining options and weighing up the Option Appraisal costs, benefits, risks and uncertainties of those options before a decision is made.
NNDR National Non Domestic Rates
The discounted value of a stream of either future costs or benefits. The NPV Net present value (NPV) is used to describe the difference between the present value of a stream of costs (NPC) and a stream of benefits. 71 National Infrastructure Commission
Term Definition The second stage of business case development, providing a fuller assessment of strategic fit, option appraisal, achievability, assumptions about Outline Business Case (OBC) costs, benefits, risks and funding. The OBC should determine the preferred option in terms of the level and form of service provision, and should recommend a particular procurement route.
RAB model Regulated Asset Based Model
Risk The likelihood (measured by its probability) that a particular event will occur.
RPI Retail Price Index
The probability of the final cost of a project being less than the P80 cost is P80 estimate 80%
PPP Public Private Partnerships
QRA Quantitative Risk Assessment
SDLT Stamp Duty Land Tax
SDO Special Development Order
Planning obligations under Section 106 of the Town and Country Planning Act 1990 (as amended), commonly known as s106 agreements, are a Section 106 agreement mechanism which make a development proposal acceptable in planning terms, that would not otherwise be acceptable. They are focused on site specific mitigation of the impact of development.
The methods used by the public sector to influence the distribution of Spatial Planning people and activities in spaces of various scales.
The first phase of business case development, which introduces the basic project concept and contains enough detail to support an informed decision Strategic Business Case (SBC) on whether to proceed to an Outline Business Case. It should include a preliminary assessment of strategic fit, options, value for money, affordability and achievability.
London Underground lines: Circle, District, Metropolitan and Hammersmith Sub-surface lines & City lines
TIEP Transport Investment and Economic Performance
TIF Tax Incremental Financing
tph Trains per hour
VED Vehicle Excise Duty
VNEB Vauxhall Nine Elms Battersea (VNEB) Opportunity Area
The Department for Transport’s Transport Appraisal Guidance document webTAG website. Readily used as a term to describe the guidance itself.
WCML West Coast Main Line National Infrastructure Commission March 2016 Report
B Review of Crossrail 2 Funding Assumptions 73 National Infrastructure Commission
Introduction For the specific funding sources assessed in the report we have examined assumptions on an exception The following assumptions relate to the Crossrail 2 basis. Where an assumption has not been covered by Funding and Financing Study, dated 27 November this report it can be considered, based on the details 2014. In this section we have outlined the basis of provided to be a reasonable assumption at this stage of the economic assumptions used and comment on the Crossrail 2 programme. where variances or changes in the assumption base may be possible. For clarity, the assumptions outlined As a core component of the funding envelope in appendices A, B & C to the Crossrail 2 Funding and proposed, forecast project generated revenues are Financing Study will be referred to as Base Assumptions. based on capturing the proceeds from net operating cashflows. These are based on a fare rise assumption of We note that this review of assumptions constitutes RPI + 1 percent until 31/3/2021 and RPI + 0.5 percent a desktop exercise only, as we have not accessed the thereafter. This runs contrary to real terms rail freezes models used to compile the figures in the study or subsequently announced by the Government for the life access to TfL or their advisers to perform a detailed of this Parliament, and was subsequently revised in July review. We also note a revision of initial assumptions 2015 report89. The impact of this change is reflected was undertaken in 2015, with the outputs presented in Table 4.3. Following 2020 the annual fare growth is in a report dated 19 June 2015. The contents of this modelled as 0.5 percent per annum. This is a relatively report have been reviewed here, and commentary conservative growth estimate when considering the on movement from the base assumptions has been long term fare growth of 1 percent above RPI since made along with our view on the evidence base and 2010, and average fare increases of 4.5 percent application of these changes. before then.
Appendix C It is worth noting the sensitivity of this revenue stream to fare freezes, if fares were to be frozen at Appendix C presents the core assumptions used RPI +0 percent over the life of Crossrail 2, this core throughout the model. At the macroeconomic funding stream drops to only 6.8 percent of the funding level, table B.1 outlines the core assumptions and envelope. commentary used in the Funding and Financing Study. This is followed by our revised assumptions and commentary.
Index Original Rate Original Commentary Revised Rate Revised commentary Retail price Index (RPI) 2.70% Agreed assumption with 3.30% Revised assumption to reflect DfT requirements from the TfL- the basis is the Bank webTAG databook. of England’s long-term CPI target of 2.00% plus 0.70% to reflect the differential between CPI and RPI
Tender Price Index (TPI) 3.50% Estimate based on the long 5.60% 87 We note that TPI at 3.5% (as used in the original and term average of the BCIS TPI revised study) is low, particularly in reference to London. All in Price Index (3.38% p.a. The higher levels of construction inflation observed in the from Feb-1985 - Nov-2013) capital could be better reflected in this assumption. The BCIS TPI All in Price Index (3.5%) reflects a national-level, long term indexation and we would suggest an index more reflective of the cost of construction in London. House Price Index (HPI) 4.70% This assumption was agreed 4.70% This reflects a reasonable long-term average, though based on discussions with noteworthy is the latest annual change in HPI of 12.4% 88 Carter Jonas and TfL
Table B.1: Crossrail 2 Macroeconomic assumptions
87 Tender Price Indicator 2nd Quarter 2015, Gardiner & Theobald
88 House Price Index, Land Registry, 26 February 2016
89 Department for Transport’s settlement at the Spending Review, 2015 74 National Infrastructure Commission
A similar issue exists with the London-wide fare rise, applied every 5 years upon revaluation. This approach where the latest announcement on fares introduced a appears suitably prudent, particularly after removing 10 freeze for 2016 only90. Crossrail 2 responded by revising percent for contingency. Based on these assumptions down their revenue assumptions by 14 percent. we would anticipate the suggested levels of BRS to be In addition to the baseline fare rise assumption, deliverable as a funding package. The key caveat to we note no contingency has been included in the this would be any change to the rating system which is modelling. This runs contrary to other revenue currently being lobbied for by various business groups assumptions where contingency has been applied as to level the playing field between traditional businesses shown in Table B.2. and internet based businesses.
The business rate supplement is designed to commence The July 2015 study revises the BRS supplement following the end of the modelled business rate upwards, meaning it becomes the largest contributor to supplement requirement for Crossrail 1 funding in the proposed envelope. This is a result of implementing 2031. Any slippage of this funding stream for Crossrail the recommended long-term RPI assumptions 1 could have an impact on the envelope for Crossrail of 3.3 percent as outlined in Table B.1. 2. The forecast is based on two factors, stock and chargeable rate. Firstly an annual growth rate of 0.25 At the quoted levels, BRS offers the project flexibility to percent to reflect additional stock becoming rateable cover any potential shortfalls in funding. An extension of every year. Secondly, revenue from rates is forecast to the supplement for 3 years would add a further £6.1bn, increase at RPI + 0.75 percent per annum, rolled up and for example.
Funding Sources Funding & financing Contingency Central Financial Case Contingency study (Nov 14) (Nov 14) (June 15) (June 15)
Net operating surplus 20.0% 0% 11.6% 0%
Mayoral CIL 11.6% 20% 16.9% 20%
Business rate supplement 15.2% 10% 20.3% 0%
Council tax precept from 1.5% 10% 1.4% 10% 2017/18
Over-station development 1.9% N/A 6.3% N/A
Total % funded 50.2% 56.5%
Total % after national rail 42.6% 43.6% extraction
Table B.2: Potential funding steams for Crossrail 2 with contingency Source: TfL, Crossrail 2 Business Case, 2015
90 TfL Press Release, November 2015 75 National Infrastructure Commission
The Mayoral CIL modelled is based on ‘fixed’ The Olympic precept gives the precedent for assumptions that are currently in use for funding implementing the Council Tax precept suggested in the Crossrail 1. As such we believe the levels of fund report, although rolling this forward for an additional put forward to be deliverable on this basis. We note 20 years may prove to be contentious. The assumptions that current legislation does not permit borrowing used to calculate the figures used are based on a against CIL, therefore legislative change would be standard methodology for calculating Council Tax. A key required to deliver this as a revenue stream to support risk will be the extent to which other charges are levied capital borrowing. Furthermore, the collection rates on Council Tax. Currently a 2 percent precept can be for Mayoral CIL are dependent on the levels of introduced to fund social care, which will raise the base development enabled by Crossrail. If investment fails to level considered in the report and therefore adjust the follow the infrastructure then there is a risk to securing level of funding modelled. Further de-centralisation of the required revenue. Council Tax setting may also damage these assumptions, though the control offered via the Greater London For Borough CIL the assumptions used are complicated Authority may mitigate this risk. by the promise to retain 50 percent of CIL generated from Crossrail 2 related development, only when In summary the assumptions used for the Crossrail 2 increases in Borough CIL receipts (resulting from Funding and Financing Study, in respect of the funding new development in the station zone) outstrip the sources, appear to be based on reasonably deliverable requirements of local service delivery. Given the assumptions. Since the report was produced core current challenges facing local government and assumptions such as RPI and TPI have flexed from the their infrastructure investment levels it is difficult base position, but these changes will take place up until to predict under which circumstances Borough CIL the completion of the project and it will be the variance would be claimed by Crossrail 2. Aside from this point, from the assumptions that will cause either under or Borough CIL assumptions are based on the actual rates overspend. The levels of contingency built in to revenue chargeable currently in each Borough and include the assumptions, alongside the optimism bias within the original Tender Price Index (TPI) rate which appears expenditure assumptions reflects this time-based to be set at a reasonable level compared to the latest risk. Assumptions were revised in July 2015 and the information. These conclusions are reflected in the July updates appear to reflect the most relevant up to date 2015 report, where Borough CIL is removed from the information available. Further investigation could be proposed envelope of funding. undertaken in relation to the TPI rate used as more work could be done to understand long term construction Station Zone Value Capture, or Incremental Business inflation for London-based projects. Rate Income is based on a mixture of trend information and actual assumptions, and therefore the revenue base The most significant assumptions within the study are appears to be broadly achievable. The key assumption politically driven, namely that revenue streams used is with regards to the 100 percent retention of income. for Crossrail 1 can be extended and transferred to This would require approval from HM Treasury to fund Crossrail 2, and that business rates growth can be implement. Given the 30 percent contingency, the retained exclusively for use on the project. Furthermore revenue modelled reflects a real terms 70 percent the assumption that the Olympic precept be continued retention of income from the proposed Station Zones, for a further 20 years is a significant ask from Londoners. which appears to be deliverable. The study notes the The major outstanding assumption not reviewed in this difficulty in securing a baseline position from which the report is with regards to project generated revenues incremental income can be measured. This has proven from passenger numbers, and we would recommend to be too high a barrier for similar funding agreements specialist investigation and due diligence in to this major in the UK, for example in Manchester a ‘Earn-back’ funding stream. value capture model was abandoned due to difficulties agreeing baseline information. National Infrastructure Commission March 2016 Report
C Review of City Deals 77 National Infrastructure Commission
Introduction The remainder of funding is contributed from ‘local’ sources, meaning from local authority capital funds, City Deals have been the primary mechanisms for usually borrowed prudentially. specific infrastructure funding outside of London. Below we have considered the first wave of City Deals, all The core developments brought by City Deals for the signed in July 2012. Table C.1. demonstrates the variety financing and funding of transport and infrastructure of funding packages agreed with Government. This are outlined in the case studies below. We have Table demonstrates Government's funding contribution focussed on Leeds, Manchester and Bristol, as these to the first wave of City Deals, be it direct funding or are the deals with the most strongly defined transport support for more innovative methods (e.g. Earn Back, infrastructure elements. Tax Increment Financing).
Of these initial deals, all but the Greater Birmingham deal involved an element of transport improvement, though as itemised in Table C.1, the Department for Transport direct funding makes up only a part of these improvements, though these deals, struck directly between local authorities and the Department for Transport represented breakthrough changes in the funding of transport.
City Deal TIF funding Business rate DfT 10 year Earn Back (£m) Other grants Total (£m) (£m) retention (£m) funding (£m) (£m) Greater - - - - 16 16 Birmingham Bristol City Region - 450 81 - 2 534 Leeds City Region - - 183 - 10 193 Liverpool City - - - - 82 82 Region Greater Manchester - - 199 900 9 1,108 Newcastle City 92 - - - 7 99 Region Nottingham City 8 - - - 29 37 Region Sheffield City 33 - 114 - 46 193 Region TOTAL 133 450 577 900 200 2,260
Table C.1: Recent city deals funding summary 78 National Infrastructure Commission
Leeds City Region91
The agreement of 10 year transport funding as part of the 2012 City Deal was the first step for Leeds City Region in developing a more stable transport funding model. It was supplemented in 2014 by an agreement to create the West Yorkshire Plus Transport Fund ("WY+TF"), a product of the City Deal, Local Growth Fund settlement and an agreement by local authorities to match funding through a committed levy, as shown in Table C.2. The total value of WY+TF is £1bn, which has been allocated to a range of rail, road and other public transport projects to be delivered between 2015 and 2025.
This funding package relies on 78:22 split between central and local contributions, with no private contributions expected. Contributions from Highways England and Network Rail are anticipated on a project-by-project basis, but these do not form part of the substantive funding package for the Region.
Forty two percent of the funding package is Local Growth Fund contribution, but this part of the package is payable from 2021/22. Unlocking this funding will be dependent on Leeds demonstrating the economic impact of the projects delivered between 2015 and 2021.
Period Funding Source £m % 2015/16 – 2020/21 Local Growth Fund 180 18
2015/16 – 2024/25 DfT funding (as above) 183 18
2021/22 – 2034/35 Local Growth Fund – contingent on economic 420 42 impact
2015/16 – 2034/35 Matched local authority levy funding 217 22
Total 1,000 100
Table C.2: Leeds City deal funding
91 West Yorkshire plus Transport Fund - Programme and Cost Review, 2014 79 National Infrastructure Commission
Greater Manchester Combined Authority Bristol
The primary innovation in the Greater Manchester City The Bristol City Deal also included funding from the Deal was the introduction of an ‘earn-back’ funding Department for Transport over ten years, and this model, agreed in 2012. Under this arrangement, is primarily to fund a series a transport ‘devolution’ Greater Manchester Combined Authority would retain projects in the city. These include: a portion of additional tax revenue generated by investment. The earn-back model required HM Treasury • delivery of a Greater Bristol Metro; to set a clear tax baseline and growth projection, • enabling greater control over the Bus Rapid whereby any tax generated in excess of the baseline Transport network; and projection could be retained and reinvested in regional • discussions over greater rail planning powers in the infrastructure. The cap on retained tax revenues was West of England £900m over 30 years. One of the planned outcomes from this transport By 2014 the complexity of the model was decided to be devolution work is the desire to recycle operational prohibitive to implement and instead ‘earn-back’ was financial savings made across the West of England Bus replaced by a ‘gain-share’ model, whereby capital grants Rapid Transport network back in to projects in the West are payable from government to the region every five of England. At present any savings need to be returned years. The value of payment is based on the assessment to Government93. of an appointed panel, who are employed to appraise the economic impact of investments to date92. Similar This City Deal has been since superseded by the West models of infrastructure funding have been used in City of England devolution proposal, which requests £1bn Deals with Greater Cambridgeshire and Glasgow and as of Central Government guaranteed funds to invest in part of the Leeds devolution agreement. cross-authority infrastructure projects. A ‘payment-by- results’ mechanism would be enabled to allow West of England to repay the borrowing from increased tax revenues, brought by economic growth94.
92 Devolving responsibilities to cities in England: Wave 1 City Deals, July 2015
93 Bristol City Region City Deal, West of England Local Enterprise Partnership
94 Bristol City Council, Full Council Agenda, September 2015